Plantation lagging behind CPO rise

In the past few weeks, CPO prices have increased sharply (see Chart 1). Despite an increase of about 20% (to RM2500) for CPO over a period of 1 month, the Plantation has only inched up about 10% to (to 4900). See Chart 2.


Chart 1: CPO's weekly chart as at 14/4/2009 (source: ifs.marketcenter.com)


Chart 2: Plantation's daily chart as at 14/4/2009 (Source: Quickcharts)

The last time the Plantation index was out of sync with the movement of CPO prices was in February/March 2008, when CPO prices was making new high & the Plantation index failed to do the same. See Chart 3 & 4 below.


Chart 3: Plantation's weekly chart as at 14/4/2009 (Source: Quickcharts)


Chart 4: CPO's weekly chart as at 11/7/2008 (source: ifs.marketcenter.com)

Based on the February/March 2008 experience, we may conclude that the crowd in the stock market is more sanguine than those in the commodity pit. If the same holds true today, we may expect the rally in CPO prices to correct shortly. We must bear in mind that CPO production is seasonal, with output skewed towards the 2nd half of the calender year on a 55:45 ratio (i.e. the output for the 2nd half is 22% higher than the first half). As such, we can expect CPO prices to come under pressure in the later part of the year. Those with plantation stocks that have run up very well (eg. Asiatic & KLK) may use this rally to take some profit.