WRO impact on plantation firms minimal

By SHAHEERA AZNAM SHAH / Pic BLOOMBERG

THE impact of the withhold release orders (WROs) issued by the US Customs and Border Protection (CBP) on Sime Darby Plantation Bhd (SDP) and FGV Holdings Bhd is expected to be minimal as investors have discounted much of the bad news.

Analysts believe the effects of the WRO for plantation firms will be less severe compared to the fate suffered by Top Glove Corp Bhd over the past week.

The world’s biggest glove manufacturer has seen its share price declining by over 12% from RM5.15 on March 26 to RM4.52 on March 31, within days after the CBP issued a detention order on

Top Glove’s disposable rubber glove products.

Other listed glovemakers were not spared the impact with their share prices coming under pressure over the week as investors sold Top Glove shares.

The US market is one of the main export destinations for Top Glove, with the North American market accounting for about 27% of its total exports in 2019.

Analysts believe the low export volume of palm oil and palm oil-based products to the US will help cushion the impact of the trade restriction on the edible oil.

An industry analyst, who spoke on condition of anonymity, said issues relating to forced labour for plantation companies have been priced in as foreign funds have largely pulled their investments out of the companies affected.

“My view is that it will have minimal impact as Malaysia does not directly export crude palm oil to the US,” he told The Malaysian Reserve (TMR).

Last year, Malaysia exported 540,349 tonnes of oil palm oil to the US, which accounted for 3% of the total export volume for 2020 at 17.4 million tonnes.

India and China continued to be Malaysia’ largest palm oil buyers, with 2.75 million tonnes and 2.73 million tonnes of the edible oil exported to the destinations respectively in 2020.

Last Friday, Bursa Malaysia’s Plantation Index rose 11.78 points or 0.17% to 7,045.54 points, with 11.92 million shares traded after opening at 7,034.02 points.

Top active counters on the index for the day were Matang Bhd, TDM Bhd, TSH Resources Bhd, Jaya Tiasa Holdings Bhd and FGV.

SDP’s share price was up one sen or 0.22% to RM4.66 last Friday with a market capitalisation of RM32.08 billion, while TSH Resources’ shares rose 1.89% or two sen to RM1.08 with a market capitalisation of RM1.49 billion.

The glove counter took a beating after the US announced the glove products made by Top Glove are prohibited from entering the country and all related items found at US ports will be seized.

According to the CBP’s website, the restriction on Top Glove’s products has been effective since March 29, after the regulator found “sufficient information” to believe that Top Glove uses forced labour in the production of disposable gloves.

The CBP also issued two separate WROs to SDP and FGV, which also apply to their subsidiaries and joint ventures, on allegations of unsustainable labour practices.

To date, the US has issued 60 WROs to manufacturers from 11 countries since 1991, and Malaysia is currently recording the second-highest number of companies being issued the detention order for its exported product coming into the US.

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