PETALING JAYA: Bursa Malaysia’s plantation counters took a dive today, as analysts revised the sector’s near-term outlook on the back of plantation shutdowns due to the movement control order (MCO) and a decline in demand from the Covid-19 pandemic.
Investors were also likely taking profit, following the plantation stock rally seen on Tuesday.
Plantation counters were among the top losers across Bursa today. Kuala Lumpur Kepong Bhd led the pack ending 2.63% down at RM20.70, while Sime Darby Plantation Bhd closed 29 sen or 5.74% lower at RM4.76.
Ta Ann Holdings Bhd finished the day 4.55% down at RM2.10, IOI Corp Bhd closed five sen lower to RM3.88 and Hap Seng Plantations Bhd was 2.21 or three sen lower at RM1.33.
Bursa’s plantation index declined 2.77% to close at 6,175.76 from a previous close of 6,351.81. Year to date, the index has fallen 19.9%, underperforming the FBM KLCI, which has retreated 13.77% over the same period.
Previously, Fitch Solutions forecast that palm oil prices are expected to decrease slightly from its current levels over the next three to six months due to the vast destruction in demand attributed to the pandemic.
The research unit of Fitch Ratings also pointed out that the palm oil supply is negatively impacted from the containment measures as plantations are shuttered.
For Malaysia, it revised down its 2019/20 production forecasts, with the view that it will decline by a steep 12% year on year (yoy), compared with a 1% growth forecast previously, as disruptions are already apparent.
Fitch Solutions noted that the October 2019-February 2020 production has fallen 19.9% year-on-year.
Although most plantation operations are exempted from the MCO, there was a one-day stoppage of work at some estates as planters waited for the outcome of their appeal for exemption. On top of that, Sabah ordered the closure of palm oil operations in three districts for seven days (from Mar 24-31) which was subsequently extended to April 14 and expanded to six districts.
To remedy the impact of the shutdown, a number of plantation players have rallied around a joint appeal by the Malaysian Palm Oil Association and the Malaysian Estate Owners Association to resume plantation operations to the Sabah state government.
With regard to the closure, CGS-CIMB reported that this could significantly impact April’s CPO production from Sabah, which produces 25% of Malaysia’s total palm oil output.
“Our projected CPO output for March 20 is -22% yoy due to MCO disruption at estates, on top of insufficient fertilising and ageing estate issues. We are likely to cut our Malaysia 2020 CPO output projection by 0.22 million tonnes if the Sabah government rejects planters’ current appeal to continue harvesting works at estates.
The research house is maintaining its neutral call on the sector, with a 2020 average CPO price forecast of RM2,300 per tonne.
