New Britain shares drop, despite palm price hopes

New Britain Palm Oil joined City analysts in sounding a cautiously upbeat note on palm oil prices, but the optimism failed to prevent shares in the group falling to a two-year low, after hits from weather to production.

Nick Thompson, the palm oil producer's chief executive, said that "a strengthening of palm oil prices in the first half of 2013 could occur" if the "overhang" of palm oil stocks in Malaysia, which hit a record high last month, erodes, as looks on the cards.

"There are signs that these [inventories] may have peaked," and that seasonally-lower output from Malaysia and Indonesia, the top producing countries, coupled with demand spurred by low prices, may "substantially lower the stocks in the coming months", Mr Thompson said.

'Price recovery'

The comments, which follow a drop in Kuala Lumpur palm oil futures to a three-year low this week, were echoed by broker Liberum Capital, which said that the vegetable oil had been "oversold" and that prices "appear to have bottomed".

"Seasonal production has now peaked in Malaysia and Indonesia and the low prices, especially in relation to competing soyoil prices, are now stimulating a recovery in demand," Liberum said.

"We expect the combination of lower seasonal production and higher demand to drive a price recovery," if forecasting that a rebound would not begin in earnest until into 2013, as "it will take at least three months to bring the current high inventory levels down".

The broker forecast palm oil prices averaging $1,000 per tonne next year, and $1,100 per tonne longer term.

Chinese demand

Separately, Peel Hunt analysts, forecast palm oil stocks eroding next year "as demand picks up as a result of the Chinese New Year and switching from more expensive oils.

"In addition, supply is likely to be more restrained," the broker said, foreseeing prices returning to $1,000 a tonne.

The forecasts are higher than the $800 per tonne that palm oil markets are offering at the moment, although New Britain has hedged 95,000 tonnes of palm oil ahead for this quarter at an average of $962 tonne.

'Geared play on palm oil'

Peel Hunt restated a "buy" rating on New Britain shares, adding that "after a very poor year in 2012, it will not be difficult for New Britain to impress next year, assuming the palm oil price increases.

But Liberum lowered its forecast for New Britain earnings next year to account for palm oil values below historic levels, describing the company as a "geared play on palm oil prices" a factor set to weigh on its shares.

"We acknowledge the shares may remain depressed until such a recovery in the commodity price is seen and that this may take until the first half of 2013."

The shares fell to 476.6p in morning deals in London, the lowest since July 2010, before recovering some ground to close at 490p, a drop of 1.0%.

'Challenging period'

New Britain's comments came as it unveiled a 74% slump to $76.1m in pre-tax profits for the first nine months of 2012, following downpours earlier in the year which hampered the palm fruit harvest and cut extraction rates, as the group revealed in August.

Mr Thompson said that "the first nine months of 2012 have been challenging for the company", witnessing an 8.0% drop to 388,187 tonnes in crude palm oil production, besides falling prices.

However, the group said it had made "good progress" in cost savings, estimated by Liberum at $25m-30m, thanks to cuts in staffing and freight and fertilizer costs.

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