Palm oil players see improvement in 2017, despite weak 4Q performance

Demands for palm oil were affected by competition oils like soybean, which saw an increase in demand, says analyst


The palm oil industry may have seen an improvement in their financial performances for 2017, despite gloomy projections from industry experts.

While the country’s largest palm oil plantation, IOI Corp Bhd, recorded a drop in its net earnings from RM743.2 million in 2016 to RM629.7 million in 2017, other plantation firms saw an improved financial performance.

For instance, Kuala Lumpur Kepong Bhd and Genting Plantations Bhd posted a higher net profit of RM1.59 billion from RM1.01 billion in 2016, and RM367.4 million from RM337.7 million over the same period respectively.

Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew said while 2017 seemed like a progress, it was not the case for the crude palm oil (CPO) prices especially in the fourth quarter (4Q).

“CPO prices usually do better in 4Q, but we saw a setback this time around. But the output remained strong throughout the quarter,” Pong told The Malaysian Reserve in a recent interview.

Pong said demands for palm oil were affected by competition oils like soybean, which saw an increase in demand.

Late last month, the Chicago Board of Trade’s March soybean oil contract rose 0.4%, in line with gains in soybean futures as severe weather conditions in parts of Argentina oil-producing regions were slated to hit production.

Pong explained the impact of the slower production of palm oil, especially in the state of Sabah, was also a factor to be considered for a sluggish 4Q.

Sabah produces 12% of the global palm supply.

“The lead up to the El Nino phenomenon saw an increased output of the oil, but the rise also indicated a surplus of stocks, as it was not selling as much,” he said.

However, from January to November 2017, the total exports of palm oil and its products stood at 22.4 million tonnes valued at RM71.5 billion, translating into a 1.3% increase on export volume and a 16.2% hike in value.

While the strengthening of the ringgit was seen as favourable to other sectors, plantation, however, was at the losing end as palm oil is traded

using the US dollar. Commenting on the European Union (EU) ban for the commodity, Pong said it will not have a major impact on Malaysia’s production and export, but he warned that it could be potentially damaging for the sector.

On Jan 17, 2018, the EU passed a resolution that stated only sustainably produced palm oil can be exported to the EU countries as of January 2021.

Malaysian leaders have said they will continue to press the EU not to proceed with the ban as it will affect the small stakeholders the most.

Pong said the outlook for the industry for 2018 is somewhat similar to last year.

“The factors affecting the ups and downs of the industry have not changed much yet, so they are likely to be vaguely the same, “ he said.

According to a recent report, the benchmark palm oil contract for May delivery on the Bursa Malaysia Derivatives Exchange was up 1.4% at RM2,523 on Feb 23, 2018.

It was the strongest daily gain since the beginning of 2018, with trading volumes at 44,727 lots of 25 tonnes each.