Golden Agri-resources to grapple with lower CPO prices

Due to rising global stocks.

OCBC noted that CPO stocks are growing faster than expected, which lead to lower CPO prices and pose profit headwinds for Golden Agri-resources.

Crude palm oil (CPO) stockpiles in Malaysia are piling up faster than expected according to a recent Reuters poll, where industry watchers see inventory in the world’s second largest CPO producer climbing to 1.91m tonnes, up 15% from Aug and also the highest since Apr, according to OCBC.

"And as palm trees usually produce more fruits in the second half of the year, market watchers expect Sep output to surge 15% from Aug to 2.0m tonnes when the Malaysian Palm Oil Board publishes its report on 10 Oct," the research firm said.

"As such, industry research Oil World believes that CPO prices could drop to a low of RMB2150/MT by early next year, citing rising global stocks and an excess supply of oilseeds (soy, corn etc)," it added.

OCBC also cited how geo-political events are also weighing heavily on Golden Agri-resources.

"Key among which is the impasse over the raising of US’ debt ceiling. Some experts warn of world-wide implication should the US government run out of money to pay its bills, as this could severely hurt the world’s largest economy and even send it back into recession. They also expect it to weight on the USD and raise interest rates across the board," said OCBC.

"Also expected to be affected is the demand for crude oil, and should crude prices fall below US$100/barrel, it would curtail the bio-diesel demand for CPO (even though both Malaysia and Indonesia have started new initiatives to increase the domestic mandate of bio-diesel)," it added.

"Against this bearish background, Golden Agri-Resources (GAR), being one of the largest oil palm plantation owners in the world, could continue to underperform (CPO prices on average down 22% YoY and 2% QoQ in 3Q13)," it said further.