Optimistic outlook for global palm oil market to boost agriculture stocks

A worker collecting palm oil fruit inside a palm oil factory.
A worker collecting palm oil fruit inside a palm oil factory. PHOTO: REUTERS

SINGAPORE - A steady growth in the global palm oil market is set to boost the Singapore Exchange's (SGX) eight agricultural products stocks that have a combined market capitalisation of S$29 billion.

In a market update report by the local bourse on Wednesday (Dec 6), the SGX said that in the 2017 year to date, these stocks averaged a -13.7 per cent price change, compared to a 16.7 per cent gain in 2016. Palm oil prices also saw a price change of -17.6 per cent in the year-to-date.

Global Palm Resources Holdings, which registered a price gain of 15.4 per cent in the year-to-date, was the best-performing stock in the sector.

According to a report published last month by Zion Market Research, the global palm oil market is forecast to grow at a compounded annual rate (CAGR) of 7.2 per cent between 2016 and 2021, reaching a market value of US$92.8 billion in 2021 from US$65.7 billion in 2015.

Growth drivers include improving economic conditions, higher living standards, and changing eating habits in emerging countries, as well as growing demand for vegetable oil as a feedstock for biodiesel production.

The research firm added that the low price of palm oil, as well as stringent regulations on trans-fat foods in US and Europe, has spurred consumers to switch to palm from soya bean and other vegetable oils.

Palm oil prices for the rest of 2017 are projected to remain firm, given the seasonally strong fourth quarter, according to Bloomberg Intelligence.

A further boost could come from weaker-than-expected output, as well as an anticipated cut in Europe's import tariffs for Indonesia's biodiesel.

The SGX classifies agricultural products under Consumer Staples, a defensive sector, it said.

"This year, defensive sectors have underperformed, as funds rotated out of defensives into cyclical stocks." For the quarter ended Sept 30, 2017, Wilmar, the world's largest processor and merchandiser of palm and lauric oils, reported a 5.7 per cent year-on-year decline in net attributable profit to US$37 million.

The better performance in oilseeds and grains, and strong contributions from associates were offset by weaker results in its tropical oils and sugar businesses.

Revenue for the quarter edged 0.4 per cent higher to US$11.1 billion, supported by increased sales from oilseeds and grains.