The Malaysian Reserve

CPO price to reach RM2,500 by year-end

Kuala Lumpur 310518 Sime Darby Plantation Bhd Executive Deputy Chairman & MD Tan Sri Mohd Bakke Salleh During FY2017/2018 Results Announcement Third Quarter Ended 31 March 2018(pic by : Ismail Che Rus)

by FARA AISYAH / pic by ISMAIL CHE RUS

CRUDE palm oil (CPO) price is expected to reach RM2,500 per tonne by the end of the year as demand for biodiesel increases and consumption rises in China and India.

“The CPO price has already hit RM2,100 per tonne in July but from now on, the price is going to show an uptrend,” said Sime Darby Plantation Bhd (SD Plantation) executive deputy chairman and MD Tan Sri Mohd Bakke Salleh (picture) last Thursday.

CPO price hit a 52-week low of RM2,140 a tonne in late July after hitting a high of RM2,896 in September last year. The benchmark CPO futures closed the week at RM2,245 last Thursday. Excess supply and high inventory have depressed price levels.

Malaysia’s key export commodity prices are not expected to revisit its heyday of around RM3,200 in 2016. Weaker prices of the edible commodity will hit planters like SD Plantation.

Mohd Bakke said the biodiesel mandate in Indonesia could help in the CPO price recovery.

“We hope to see an increase in utilisation of biodiesel for this year,” he said.

“We are expecting to see higher uptake from China and India for the fact that the overall sentiment for palm oil has improved. We can see that crude oil price has been showing uptrend so that itself will lead to better or higher CPO price,” he told reporters at the company’s media briefing in Petaling Jaya last week.

He added that SD Plantation is expecting the CPO price to trade between RM2,250 and highest RM2,500 per tonne by year-end.

Meanwhile, SD Plantation’s net profit in the fourth quarter ended June 30, 2018 (4Q18), plunged 98.86% year-on-year (YoY) to RM30 million from RM2.63 billion posted a year ago due to absence of one-off gains reported in the corresponding quarter a year ago.

The planter was also slapped with RM283 million impairment charges comprising RM112 million related to its long-term assets in Liberia and an impairment charge of RM157 million in its investment associate company in Verdezyne Inc.

SD Plantation’s revenue for the three-month under review also fell 16.58% to RM3.08 billion from RM3.69 billion in 4Q17.

For the whole year, the planter posted a net profit of RM1.7 billion compared to RM3.5 billion as absence of one-off gains.

“We are operating in a very challenging business environment. This year, despite achieving the strongest yield performance in Malaysia in the last five years, uncertainties surrounding the US-China trade disputes have resulted in greater CPO price volatility, which impacted the group’s performance in the financial year of 2018 (FY18).

“Nevertheless, our continuous efforts to improve operational efficiency, particularly on replanting, mechanisation and water management, have contributed a 5% growth in FFB (fresh fruit bunches) production for FY18,” Bakke said.

He also said those initiatives will continue to drive SD Plantation’s performance as it moves forward into the new financial period.

The company has recommended a final single-tier dividend of eight sen per share for FY18.

SD Plantation share price ended last week’s session at RM5.36, higher than its 52-week low of RM4.58. Its current price remains below the listing price of RM5.59 after the demerger of the conglomerate.