Sunday, July 20, 2008

Palm oil stocks take a bashing too

Our palm oil has always been regarded as a saviour but rising costs, increased regulatory risks and a slowdown in earnings momentum have suddenly contributed to a decline. Last week, the biggest losers were Kuala Lumpur Kepong, IOI Corp, Kulim and Asiatic Development, with CPO prices falling to a two-month low of RM3,388 a tonne, last Friday, from some RM4,300 in March. As The Edge correctly reported, the plantation sector has always been a cushion for the economy at a time when manufacturing sector has been hit by a weak global demand. Analysts are still optimistic, particularly with strong demand from China but there is a lesson to learn here - we cannot just depend on palm oil and crude oil in the long run. Over the past decades, these two sectors have helped Malaysia ride through through the toughest economic period. But the dip in the performance of these palm oil stocks should jolt us out of our comfort zone. With the world heading towards a recession, if not depression, we have reason to be very concerned. Let's hope there is a rebound soon. But the reality is that we have to find new sources of income for Malaysia.

1 comment:

Anonymous said...

The fall in palm oil company share prices are due to 2 reasons:
1) fall in crude oil prices
2) possibility of government's implementation of wind fall tax.

The fall in crude oil prices is a temporary correction, and the upward trend will continue later in the year, as hurricanes threatens the gulf of mexico, and as winter season approaches. Also any resumption of tension in the middle east will send the prices shooting upwards.

As for the windfall tax, it is bad for the government to interfere in business dynamics. When the price of palm oilis down, does the government pay the palm oil companies? No. Similarly when the palm oil price is up, it should not impose an arbitrary tax. Rather it should encourage the palm oil companies to mechanize their operations further, and to invest in workers' welfare such as improving the living quarters, their children's schools, workers' health etc. We don't need the government to grab money by a "windfall tax" and then use the money for some grandiose projects to produce some white elephants.