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Friday, October 29, 2010

Palm Oil Commodity Fight - Wilmar versus Golden Agri

Palm Oil or Crude Palm Oil (CPO) dominated the headings when oil prices were hovering over $150, as a potential alternative biofuel for vehicle usage.

And rightly so, I have been writing some articles on Lithium as a new bet for hybrid car demand. Hybrid car batteries need Lithium, and so this commodity will heat up soon.

So back to palm oil. Besides being a biofuel, the main usage is for cooking oil, basic daily consumption, making soap and many other fast moving consumer goods (FMCG). Now the toss up surely is to look at the largest palm oil producers or harvesters. Who are the players?

Wilmar is the largest, and the current price is over $7.00
Next is Golden Agri, and the current price is around 65 cents.

Both companies own large tracts of palm oil producing fields in Indonesia - Sumatra, Kalimantan, Sulawesi. Labour cost is relatively low.

Perhaps the big simple question of investing is to go for the number 1. Wilmar. My suggestion instead is to buy into Golden Agri - 10 lots of Golden Agri is equal to 1 lot of Wilmar. And when price fluctuates, the investor has an easier way to divest out of several lots instead of holding to 1 large costlier lot.

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