Plantation stocks have mostly traded up in the last few days, contributing the continued KLSE strength. Today's movement even formed a morning star. But I still think we're fairly near a top and this is a seller's market.

Anyway today by complete coincidence after I posted about wanting to look into plantations yesterday OSK research came up with a piece on palm oil which could tell you more about the market than I ever will so I have included it as an attachment.

Plantation sector upgrade20060426.pdf

But here are a couple of extra points. Despite all the brou ha-ha about how palm oil is going to be a fuel substitute etc. let's take a look at some prices:

PALM                     SUGAR

The market just doesn't seem to be buying into the story. OSK's general explanation is that because most plants have not come online there is no demand yet, unlike for sugar which is already being used for its ethanol content. Sound like a good explanation? No. If there is no global demand for palm oil (or not as much as we would like) then why shouldn't this rationale extend to the plantation stocks which produce the very commodity? I don't think the market is stupid. If there is a real chance that palm oil will become even a close alternative to oil everybody would be buying into it now regardless of when the next plant comes online. After all that's what the entire futures market is there fore. I'm not saying it won't happen, but only that this isn't what the market is telling me.

Incidentally over the weekend a friend in the energy industry alerted me to some other candidates which seem more likely: 1) coal and 2) nuclear power.

But that doesn't mean that I won't buy plantations because that is a slightly different story. I anticipate that the malaysian government will continue to do its utmost to promote palm oil as much as possible, including making it a compulsory component for diesel, so plantation stocks should continue to benefit. I remain a buyer but only on weakness.