Another gloomy year for FGV expected with India’s 5% tax hike on palm oil

India is the world’s biggest importer of vegetable oils, accounting for about 23% of total global demand from Indonesia and Malaysia


THE world’s largest crude palm oil (CPO) producer, FGV Holdings Bhd, delivered a downbeat market outlook for the rest of 2019 as Malaysia’s refined palm oil exports are expected to take a hit from India’s 5% tax hike to boost its domestic output.

The company expects prices to remain suppressed at between RM2,000 and RM2,200 per tonne over the next six months following India’s latest protectionist policy.

India is the world’s biggest importer of vegetable oils, accounting for about 23% of total global demand from plantations in Indonesia and Malaysia.

FGV group CEO Datuk Haris Fadzilah Hassan (picture) described the tax rate hike on Malaysia’s refined palm oil from the current 45% to 50% in the coming weeks as a “worrying development”.

“If they (India) add 5%, then we are no different than Indonesia. We know in terms of scale, Indonesia’s production is double that of Malaysia’s…so the competition will be heightened. Our exports to India are about 30,000 tonnes per month, so it is a significant market to us.

“We can expect lower margins or look at other areas on how we want to enter India,” he told reporters at the company’s second quarter ended June 30, 2019 (2Q19), financial results briefing in Kuala Lumpur yesterday.

Haris said local plantation firms have been forced to cut costs as price pressures have dented income in recent years, including FGV, which last recorded a profit six quarters ago in 4Q17.

Despite improved operational efficiency, FGV reported a deeper loss of RM52.3 million in 2Q19 against RM23.43 million on weak CPO prices and losses incurred in the sugar sector. Its revenue for the quarter also fell nearly 5% year- on-year to RM3.28 billion from RM3.44 billion.

The company’s effort to improve on operational efficiency — exemplified by the increase in fresh fruit bunches production — has helped to minimise its losses for 2Q19. Its average CPO production cost has also been lowered by 23% to RM1,455 for the quarter from RM1,884 the year prior.

However, weak prices and losses incurred by its sugar business, MSM Malaysia Holdings Bhd, are expected to keep FGV in the red. In addition, uncertainties over the future of its board of directors will continue to cast a dark cloud on its prospects.

Haris said there have been no “official” talks on the remuneration of the board with its major stakeholder — the Federal Land Development Authority (Felda) — so far, following the appointment of Tan Sri Mohd Bakke Salleh as its chairman.

He also said the board has not shown any sign of slowing down and hopes that the matter will be resolved soon.

Earlier in June, Felda made an unprecedented move by rejecting all three resolutions linked to the remuneration of the board, leaving the future of FGV’s directors in the balance.

Other institutional shareholders — such as Koperasi Permodalan Felda Malaysia Bhd and the Armed Forces Fund Board — had also voted against the proposal, with the latter stating that the remuneration package was not in line with the company’s poor performance.

FGV’s share ended three sen or 3.55% lower at 95 sen yesterday, its lowest since January this year.