Why Golden Agri will be worst hit by sluggish CPO outlook

CPO prices to face downward pressure.

According to OCBC Investment Research, Golden Agri, as one of the largest upstream players will be severly hit by the weak CPO outlook.

Here's more from OCBC:

The outlook for CPO (crude palm oil) prices is likely to remain weak as  market watchers continue to expect further weakness in 2H13, weighed by expectations of higher CPO production and also increased supply from vegetable substitutes like soy and corn oils.

According to Dorab Mistry, director at Godrej International Ltd, “the rally in CPO prices has just about run its course and will face downward pressure from here”.

Mistry now expects to see new lows in vegetable oil and particularly in palm and lauric oil in early Jan.
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Upstream players to feel negative impact most
Golden Agri-Resources (GAR), being one of the largest palm oil plantation owners in the world, is likely to feel the negative impact the most.

Over the past three years, GAR share price has shown a strong 0.8 correlation to CPO prices. And in wake of the recent rebound in CPO prices and the corresponding rebound in GAR share price, we suspect that any pullback could come quite swiftly.

Nevertheless, management continues to remain upbeat about the long-term prospects of the palm oil industry, and will continue to increase its production of sustainable palm oil, improve operating efficiency and also optimise its downstream value chain opportunities.