- There were three interesting developments in the plantation sector last week:- (1) India’s discussion on the increase in cooking oil tax; (2) Indonesia’s and Singapore’s clash on making land concession maps public; and (3) the MoM decline in Indonesia’s exports of palm oil in June.
- India’s Food Minister, KV Thomas, said that import duty on refined vegetable oils will not be increased immediately. He said the palm oil refining industry’s request to increase the import duty from 7.5% needs more discussion among the Commerce, Agriculture, Finance and Food Ministries.
- We view this development positively as any hike in import duty could soften the demand for refined palm oil. India’s imports of Malaysian palm oil declined by 12.6% YoY in 1H2013.
- We believe that India is hesitating to increase import duty for fear of inflationary pressures. India’s inflation rate hit a three-month high of 4.86% in June 2013.
- Indonesia has agreed to provide Malaysian and Singaporean Governments maps of plantation concessions in fire-prone areas on the condition that they are not made public. However, a Singapore government official said that his preference is for the maps to be made public so that the guilty companies can be punished.
- The map-sharing agreement is subject to approval at the ASEAN Leaders’ Summit in October 2013. Indonesia’s Parliament may ratify a regional haze treaty by end-2013 or early-2014.
- Indonesia reported that its palm oil shipments fell by 11% from 1.82mil tonnes in May to 1.62mil tonnes in June. In contrast, exports of Malaysian palm oil were unchanged at 1.41mil tonnes in June.
- We think the discrepancy between the export data in Malaysia and Indonesia could be due to a weak production period in Indonesia in June. BW Plantations and Astra Agro Lestari reported 5.3% to 10.4% MoM falls in FFB production in June. However, First Resources bucked the trend with a 9.4% MoM increase in FFB output.
- We reckon the increase in refinery capacity in Indonesia could have also attributed to tight supply in Indonesia in June. Refining capacity in the country is forecasted to increase from 25.1mil tonnes in 2013F to 30.9mil tonnes in 2014F.
- We are still favourable on the plantation sector. Presently, we have BUYs on Genting Plantations, IJM Plantations, TSH Resources and KL Kepong.
Source: AmeSecurities
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