Commodities - Gloomy Outlook

Thursday January 1, 2009
Gloomy outlook for commodities
By LOONG TSE MIN



PETALING JAYA: Commodities were the flavour of the month for some time, bringing huge profits to commodity players worldwide, but with the credit crisis hitting global markets in March last year, that came to a quick end.

The price of crude palm oil (CPO), one of the country’s major commodities exports, dropped from an all-time high of RM4,330 per tonne on March 3 to a low of RM1,390 per tonne on Oct 24. However, it has been above RM1,500 last month.

Meanwhile, crude oil, which had on July 3 hit a high of US$145.29 per barrel in New York trading, recently fell to a four-year low of US$33.87 on Dec 19 and was at about US$38 a barrel yesterday.

TA Securities, in its 2009 market strategy report, said: “On the back of a doom-and-gloom outlook, demand for our commodities will take a backseat and significant price recoveries in CPO and crude oil could be delayed until the fourth quarter of 2009.”

The research house expects CPO prices to average RM2,000 per tonne and crude oil to average US$45 a barrel for 2009. Last year, CPO prices averaged RM2,800 per tonne and crude oil prices US$104 per barrel.

It said any upswing in the benchmark KL Composite Index (KLCI) had to be driven by upward movements in the price of banking and plantation stocks.

OSK Securities, which has a short-term “neutral” but long-term “overweight” call on the oil and gas (O&G) sector, said in its year-end report: “With the recent drastic pullback in crude oil prices to below US$50 a barrel, we remain neutral on the O&G sector in 2009.”

OSK Securities believes there wil be a slowdown in exploration and production activities owing to the weakening overall global economy.

However, over the long term – beyond 2009 – the research house sees Malaysia’s O&G industry recovering “given that oil and gas are scarce commodities without real substitutes at reasonable cost”.

Besides the economic slowdown, uncertainty over the direction of crude oil price will also be a major cause for weaker growth in the O&G sector next year.

“We believe that most of the oil majors and their supporting industries will reduce capital expenditure and adopt a wait-and-see attitude until a clearer picture emerges,” the report said.

Apart from the commodity superstars, another important export commodity, timber, fared somewhat differently over the last year.

An analyst at a brokerage told StarBiz that the price of concrete forming panel (CFP) and structural forming panel (SFP) made of plywood had shot up to between US$450 and US$500 per cu m from lows of US$300 to US$350 in November 2007.

However, he pointed out that due to the sector having too many product varieties, it makes it not feasible to create a trading market for timber anywhere in the world.

Listed downstream timber players like Ta Ann Holdings and WTK Holdings are expected to see better margins, going forward.

Despite the weakening global economy, the analyst believes housing demand in Japan and, therefore, Malaysian plywood exports would remain stable.

As for the upstream segment, he said log prices had always been quite stable as there was limited supply, with prices now at US$200 per cu m. Rubber remains a major commodity traded in Malaysia.

Tyre-grade Standard Malaysian Rubber No. 20 (SMR 20) followed pretty much the same path as CPO and crude oil, falling from a high of RM10.52 per kg on July 2 to a low of RM3.92 per kg on Dec 12.

SMR 20 was trading at about RM4.45 per kg in yesterday’s thin year-end market.

Meanwhile, OSK Securities expected Malaysian rubber glove makers that used latex to see continued growth in demand for their products despite the economic slowdown. This is due to the increasing awareness in hygiene globally.

Malaysian glove makers command 55% to 65% of the world’s rubber glove market.