Can palm oil companies keep growing?

The rally in palm oil prices has lifted investor sentiment in major locally listed planters. Analysts warn, however, that the days of sheer volume-driven growth are gone. How do palm oil companies ensure the stability of their earnings?

The recent rally in crude palm oil (CPO) prices has surprised analysts and boosted locally listed palm oil stocks. Shares in Indofood Agri Resources, which had been trading sideways since the middle of the year, shot up considerably in early December to 58.5 cents — close to the 52- week high of 62.5 cents that they hit in March. Wilmar International’s stock has also rallied and was up more than 23% so far this year. Golden Agri-Resources, the world’s second- largest oil palm planter, is now worth 25% more than it was a year ago.

After such a rally, is there room for more upside? Perhaps — if investors pick the right stocks. Industry observers point out that CPO prices are not the only growth driver for palm oil players today. With risks such as pressure from environmental groups and government regulations, investors need to look for companies that are going overseas, integrating their operations across the palm oil supply chain and even diversifying into other commodities.

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