■ The USA’s ban of trans fat by 2018 is positive for palm oil, but incremental demand is relatively small at 0.22m MT pa.
■ No CPO price jump expected. But this could benefit IOI Corp for its 400,000 tpa specialty fats plant near Chicago, USA.
■ Still NEUTRAL on the sector. Top BUYs are First Resources, Bumitama Agri, Genting Plantations, and Sarawak Oil Palms.
According to Bloomberg news, artificial trans fat will be removed from the USA food supply over the next three years under a ruling by regulators that the products pose health risks that contribute to heart disease. Palm oil is seen as a key beneficiary as palm oil is semi-solid at room temperature and hence do not need to go through hydrogenation process, thus suitable for industrial use. Trans fat ban has been selectively imposed in the USA before this but this nationwide ban by 2018 is definitely a welcoming news for plantation companies. The ban of trans fat in States like California and New York has already seen a gradual increase in demand for palm oil in the USA in recent years.
What’s Our View
According to the article, the USA market size for palm oil is ~2.6 billion pounds (or ~1.2m MT) annually. With the new proposal, demand for palm oil is expected to increase by half a billion pounds a year (or 0.22m MT) per annum. Relative to global palm oil production of ~60m MT per annum, the incremental demand is not expected to be significant. Hence, we don't expect a jump in CPO prices arising from this new ruling. Nonetheless, this is overall positive for the palm oil industry in terms of off-take. The sector remains a Neutral. Top Buys in the region are First Resources, Bumitama Agri, Genting Plantations and Sarawak Oil Palms.
One company with significant specialty oils and fats exposure that could directly benefit from this new ruling is IOI Corporation (HOLD, TP: MYR3.85). IOI Corporation, via its 100%-owned Loders Crooklaan, has a 400,000 MT pa specialty oils and fats plant located in Channahon, USA which is approximately an hour’s drive from the city of Chicago. The group has doubled its plant capacity in the USA from ~200,000 MT pa in 2012 benefiting from the growing demand of trans fat free sustainable palm oil. (Read Report)
Read Related Report
ASEAN Plantation - Impact of US trans-fat ban
Wednesday, 17 June 2015
Wednesday, 17 June 2015
- CIMB Research
Source : Maybank Kim Eng Research