PLANTATION (NEUTRAL) Sector Update: Running Out Of Time - OSK

Recent production numbers released by major Indonesian planters reveal that severe drought in Indonesia 2 years ago have caused their 4Q production to suffer. Besides the very cheap price in 4Q, the production shortfall in Indonesia has probably helped to hold up Malaysia’s palm oil exports last quarter and in the current quarter. We are concerned that palm oil prices could come under pressure when Indonesia’s production recovers, which could occur as early as 2Q. Moreover, Malaysian production should be exiting its seasonal low next month. The speed of mandatory biodiesel implementation holds the key to preventing a collapse in palm oil prices. Maintain Neutral weighting on the plantation sector.