investingfromtheright

I am retired and take educated guesses on all things financial.

November 15, 2007

November 15, 2007: Palm Oil is "in" as a great biofuel source





pictures: young palm trees being raised to produce oil and, a small part of a palm tree plantation in Malaysia


I try to keep abreast of the alternative energy zoo and pick out the companies and their product(s) that can survive without government subsidies. One such alternative energy source is palm oil. I like the product and its availability to the far east (India, China and the Pacific Rim countries). I like the fact that unlike corn and other biofuel sources, it does not impact basic foodstuff for the tens of millions of people who depend on cheap grain for their subsistence (witness the riots over the price of corn in Central and South America recently because ethanol jacked up the price of that grain which is vital to peasant diets). I like the fact that palm tree production is getting less labor intensive, with research producing types of palm trees that are prone to faster growth and higher palm oil production. And I like the fact that the plantations that produce palm oil in high quantity are still cheap to buy, if you have access to their stock listing placement in such places as Malaysia, Singapore, Indonesia and the Philippines.

There is an 88% correlation between palm oil prices and plantation stock performance. Valuation of plantation companies should continue to be revised upwards to reflect continuing demand. Palm oil prices are at a record high due to crude oil prices and geopolitical reasons. Palm oil inventories fell 19% in September as wheat and corn prices continue to surge, intensifying the competition between those basic grains for food versus fuel.

Palm oil is able to stand on its own without subsidies.

Highly recommend picks are the following:

Kuala Lumpar Kepong KLKK.KL in Malaysia
IOI Corporation IOIB.KL in Malaysia
Indofood Agri IFAR.SI in Singapore - a top pick
London Sumatra LSIP.JK in Indonesia
Sampoerna Agro SGRO.JK in Indonesia

Maybe this sector is ripe for an ETF Fund. Compared with many other recent ETF parsed index funds, plantation palm oil stocks would rate better than many.

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