Palm oil upcycle not over, says Goldman

INVESTORS should buy PT Perusahaan Perkebunan London Sumatra Indonesia and Sime Darby Bhd after their recent drop as palm oil stocks remain attractive and prices for the commodity may gain, Goldman Sachs Group Inc said.

Prices for palm oil may rise up to 20 per cent this year on demand for biofuels and a potential rebound in crude oil, Goldman analysts Patrick Tiah and Nikhil Bhandari said in a report yesterday.

"Palm oil biodiesel is still profitable and we expect rising utilisation rates to boost palm oil demand," the analysts wrote. "There is upside potential for crude palm oil (CPO) prices due to extremely low inventories."

CPO's 13 per cent retreat from a record US$147.27 (RM477) on July 11 sparked a sell-off in plantation stocks in the region on concern lower prices will sap the appeal of palm oil as an alternative fuel. Merrill Lynch & Co and Morgan Stanley have said investors should sell commodities stocks because demand may decline.

Perusahaan Perkebunan is Goldman's top pick while Sime Darby, the largest listed palm oil producer, offers the most attractive price-to-earnings valuations, the report said. "Wilmar International Ltd is a longer-term core holding," it said.

Perusahaan Perkebunan has fallen 33 per cent in one month, Sime Darby 13 per cent and Wilmar 17 per cent.

"A pullback in crude oil prices sparked a broader selldown of commodities-related stocks," the report said. "The palm oil upcycle is not over." - Bloomberg