ECM Libra: cpo prices have room for further correction

KUALA LUMPUR, Feb 22 (Bernama) -- Crude palm oil (CPO) prices have
room for further correction to an average price of RM2,700 (US$870.96) per
metric tonne, according to ECM Libra Investment Research.

"A RM2,700 per metric tonne for the year may sound drastic to many given
last week's close of RM3,628 (US$1,170) per metric tonne. We view it still
reasonable as CPO prices are inherently volatile," it said in a research note
Tuesday.

ECM Libra believes that CPO prices are to trend further downward as supplies
in Malaysia and Indonesia have to make a comeback.

It has seen two rather exuberant CPO production forecasts for this year so
far, one from Oil World and the other, the US Department of Agriculture
(USDA).

Oil World expects that the total palm oil production could recover by some
3.4 million metric tonne this year, of which an additional 1.1 million tonnes
will be produced by Malaysia and the rest from Indonesia.

The USDA has a similar forecast for Indonesia adding more than two million
metric tonnes of production and Malaysia crossing the 18 million metric tonne
mark.

ECM Libra said there is also now a very strong correlation between CPO,
soybeans and wheat prices and it has emerged with the run up in wheat prices
over 2010.

The research house said soybeans and wheat are able to share the same
hectarage.

Hence, the fight for hectarage when planting season comes around, is where
the relationship between soybeans and wheat emerges.

"As such, CPO has formed a strong relationship with wheat through soybeans.

"With the soybean situation easing somewhat as the attention turns to South
Africa, it is only natural that CPO is weakening as well," it explained.

ECM Libra has a trading "buy" call across the plantation sector and only
downgraded IOI Corp to "hold".

"Our premise of having a trading "buy" call is that plantation stocks
typically have a high correlation with CPO prices," ECM Libra said.