Singapore agribusiness players must brace for lower CPO prices

CPO is currently trading at US$300/MT.

According to Phillip Securities Research, While CPO prices may be supported by lower inventory in the near term on higher demand ahead of Ramadan, it expects downward price pressures to continue in 2H13 as CPO production picks up, coupled with an anticipated higher soybean harvest coming from the US in the 2nd half of the year. CPO is currently trading at ~US$300/MT discount to soybean oil, which is still above its historical long-term average of US$200/MT.

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Between the two stocks under our coverage, we prefer Wilmar International to Golden Agri as we expect the former to be less impacted by the lower CPO prices, as upstream operations account for only ~25% of its profit. Furthermore, we see positive long term prospects for Wilmar, given its large exposure to China and other emerging markets.