■ 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
Source : Maybank Kim Eng Research
Labels: Bumitama Agri Ltd, CPO, First Resources, Palm Oil