OSK Research raised its call on the regional plantation sector to "overweight" from "neutral" as the palm oil price is likely to trade with a three-year upcycle due to weather conditions.

The research house said in a note that the recent Southern Oscillation Index (SOI) — a gauge of abnormal weather conditions — pointed to a higher chance of El Nino which may bring a drought to palm oil exporting Southeast Asia.

“This will curb palm oil production and stoke palm oil’s price surge,” the broker said, adding that Malaysia’s already weak production may be aggravated by the onset of El Nino, which will lead to an uptrend in palm oil price.

Malaysia’s palm oil production for the first five months fell 7.3 percent on adverse weather, while May’s production sank 20.6 percent year-on-year, the broker added.

OSK raised its average price assumption for 2013 to RM3,500 per tonne from RM3,100 per tonne. It also said a record price of close to RM4,500 is likely to be surpassed before the end of the price upcycle.

The research house raised Malaysia’s Kuala Lumpur Kepong Bhd and Glenealy Plantations Bhd as well as Indonesia’s Astra Agro Lestari to "buy". Kuala Lumpur-listed IOI Corporation Bhd was raised "neutral". -- Reuters