Kenanga Research is positive on the plantation sector and believes that the news is neutral for crude palm oil (CPO) prices as a sustained inventory decline should lend the prices strong support.

It said in a research note today that Malaysia's palm oil stocks will continue to decline in June 2013 to 1.75 million tonnes and this should be positive for CPO prices.

"Based on the daily MPOB spot prices for CPO, we estimate that CPO prices stayed at a low average of RM2,320 per metric tonne for the second quarter of calendar year 2013, a 28 per cent decline year-on-year and flat growth quarter-on-quarter," it said.

The research house said according to the latest United States Department of Agriculture (USDA) acreage report, US farmers will plant 77.3 million acres of soybean in 2013, which is within the consensus estimate of 77.81 million acres.

"Although USDA mentioned that the area for harvest is estimated to be at a record high of 76.9 million acres, we believe that the market should have piced in this estimate judging from the recent falls in both soybean oil and CPO prices last week," it said.

Although it believes only oil palm planters with high FFB growth would be able to deliver higher earnings expansion in the current low CPO price environment, Kenanga is maintaining a 'neutral' call on the plantation sector.-- Bernama