Sime Darby expects CPO prices to remain elevated in next 6 months

Company views the prolonged increase in CPO prices as not sustainable in the long run, as it would lead to a sales decline

by ASILA JALIL / Pic by BLOOMBERG

SIME Darby Plantation Bhd (SDP) projects crude palm oil (CPO) prices to hover between RM4,000 and RM4,700 per tonne in the next six months, as demand exceeds supply.

Sime Darby Oils Sdn Bhd MD Mohd Haris Mohd Arshad said interests in CPO as investable assets would also keep CPO prices elevated, besides the supply and demand factor.

However, the company views the prolonged increase in CPO prices as not sustainable in the long run, as it would lead to a sales decline.

“Customers are holding back and, in some instances, they are not able to buy as much as they used to in the past,” Mohd Haris said during the group’s virtual press briefing on its latest financial results yesterday.

In the longer term, he said the price is expected to range between RM3,000 and RM3,500 per tonne due to better crop output from the northern and southern hemispheres next year.

SDP’s net profit jumped 63.2% year-onyear (YoY) to RM617 million for its second quarter ended June 30, 2021 (2Q21), compared to RM378 last year, attributable to higher realised CPO and palm kernel prices, and an increase in fresh fruit bunch production.

Its 2Q21 revenue rose 37.2% YoY to RM4.41 billion from RM3.22 billion a year ago.

For its first half of the year (1H21), SDP recorded a net profit of RM1.18 billion, up 39.4% YoY from RM846 million, while revenue rose 29.1% YoY to RM8.08 billion from RM6.26 billion previously.

Its pretax profit for the upstream segment more than doubled to RM1.33 billion in 1H21, compared to RM604 million last year, due to high realised CPO and palm kernel oil prices, which averaged at RM3,422 and RM2,312 per metric tonne respectively.

SDP declared an interim dividend of 7.9 sen per share for the financial year ending Dec 31, 2021, payable on Nov 12.

Group MD Mohamad Helmy Othman Basha said the labour shortage caused by the pandemic would have a major impact on its production in Malaysia this year.

“For Malaysia, we are going to register a deficit compared to what we had registered for 2020.

“But Malaysia only accounts for 50% of our total production. Another 50% comes from Indonesia and Papua New Guinea,” he said.

On the labour practice assessment by Impactt Ltd, he said movement restrictions had halted the progress as evaluations could not be done in East Malaysia.

The plantation company had previously received a Withhold Release Order by the US Customs and Border Protection in December over allegations of forced labour.

Mohamad Helmy said the group is also ramping up automation efforts to reduce its reliance on foreign workers.