Kepong Leads Slump by Palm Oil Makers as Prices Drop

By Angus Whitley

Aug. 5 (Bloomberg) -- Kuala Lumpur Kepong Bhd. led a slump by palm oil producers on Southeast Asian stock exchanges amid a global decline in crude oil and commodity prices.

Kepong, Malaysia's third-biggest producer, lost 6.8 percent to 12.3 ringgit at 12:29 p.m. in Kuala Lumpur trading, set for the lowest close in almost a year. In Jakarta, PT Astra Agro Lestari, Indonesia's largest agricultural company, dropped 3.6 percent to 20,300 rupiah.

A worsening outlook for global economic growth and prospects for increased supply sent crude, soybeans and gasoline tumbling from records last month. Shares of palm oil makers such as IOI Corp., reaping record profits from surging prices of the edible oil, may not recover until crude rallies, some analysts said.

``It's a temporary correction,'' said Kaladher Govindan, research head at TA Securities Holdings Bhd., who says investors should buy plantation stocks. ``Crude will rebound in another month or two. A rebound could correlate positively to palm oil.''

Palm oil, mostly used in cooking, dropped in Malaysia to 2,750 ringgit ($841) a metric ton, the lowest in more than nine months. Palm oil often tracks crude oil because it can be used to produce biofuels. Crude oil closed at $121.41 a barrel yesterday, the lowest in three months.

Plunging prices for cocoa, natural gas and sugar sent the Reuters/Jefferies CRB Index of 19 commodities yesterday to its biggest one-day decline since March.

`Pulling Out'

``There are many funds pulling out of commodities,'' Yusuf Ade Winoto, a Jakarta-based analyst at DBS Vickers Securities Indonesia, said. ``The effect of the global economic slowdown'' may hurt demand, he said.

Service industries in the U.S. probably shrank in July for a second straight month, signaling the slowdown in growth broadened, economists said before a report this week. Asian nations including Malaysia rely on U.S. demand for exports to power their economies.

Sime Darby Bhd., the world's largest publicly traded oil palm grower, today fell 4.5 percent to 7.45 ringgit on the Kuala Lumpur stock exchange. The shares are headed for the biggest one-day decline since March and the lowest level since they started trading in November 2007. IOI, Malaysia's second-biggest palm oil producer, lost 7.3 percent to 5.1 ringgit, set for a 12-month low.

In Singapore, Wilmar International Ltd., China's biggest vegetable-oil supplier, declined as much as 5 percent, dropping for a third straight day. Golden Agri-Resources Ltd., a unit of Indonesia's largest oil-palm grower, Sinar Mas Group, slumped as much as 12 percent.

To contact the reporter on this story: Angus Whitley in Kuala Lumpur at awhitley1@bloomberg.net