CPO to rebound on demand supply fundamentals

Indonesian CPO production has peaked, India’s demand getting stronger, speculative selling is easing


The low crude palm oil (CPO) price has hit producers hard in recent quarters, but the worst may be over now, according to Sime Darby Plantation Bhd (SD Plantation).

SD Plantation COO (downstream) Mohd Haris Mohd Arshad said production stabilisation in Indonesia, the return of Indian demand and the narrowing of palm oil gas oil (Pogo) spread will help strengthen the price of CPO.

Mohd Har is expects Indonesian CPO production to have passed its peak, while stronger demand from India and easing of speculative selling of palm oil will restore the demand supply fundamentals.

He said one of the major reasons that caused the CPO price to weaken was speculative trading by investors in Pogo markets.

He said the trading play will unwind with the closing of the Pogo spread.

Mohd Haris said Indian demand is returning to palm oil over soyoil, which will be positive for the CPO price.

SD Plantation’s net profit for the three months ended Sept 30, 2018, dropped 89% year-on-year (YoY) to RM115 million from RM1.02 billion for the same period in 2017 due to weaker CPO and palm kernel (PK) prices. Revenue declined 14% YoY to RM3.04 billion.

The group zoomed in on the impact of lower average CPO and PK prices realised in the quarter under review which was in the quantum of RM300 million on the pretax profit.

CPO price hit a three-year low this year and palm oil producers have taken the brunt.

Industry peer, IOI Corp Bhd, saw its net profit for the first three month ended Sept 30, decline by 60% YoY to RM144 million due to lower fresh fruit bunches production and lower CPO price realised.

Mohd Haris, in a media briefing last Friday in Kuala Lumpur, said SD Plantation will focus on managing its operational cost in facing the headwinds from the low price of CPO.

CFO Renaka Ramachandran said the group will allocate some RM1.3 billion for capital expenditure for financial year 2019.

Executive deputy chairman and MD Tan Sri Mohd Bakke Salleh said the integrated planter will work on some transactions that will lead to the disposal of some of its non-core assets and parts of its existing estates that would be identified for development.

Mohd Bakke estimated an annual utilisation of about 700 tonnes of CPO with the implementation of the B10 mandate for the transportation sector nationwide.

Primary Industries Minister Teresa Kok said in a radio interview with Bernama recently that the government has given the approval to implement the B10 mandate starting Dec 1, from B7.


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