Plantation players rejoice over higher palm oil price amid pandemic-hit year

The majority of plantation players have recorded stellar net profit in 2020 while some companies have substantially trimmed their losses, thanks to the higher palm oil price amid a pandemic-hit year.

Plantation experts expected the momentum to continue in 2021 especially since the country’s palm oil inventory stood at a 40-month low of 1.57 million tonnes as of end-October.

“The crude palm oil (CPO) price is expected to stay elevated at above RM3,000 per tonne in the immediate term,” Bank Islam Malaysia Bhd economist Adam Mohamed Rahim told Bernama.

He said other factors that might continue to support the price included the excessive rainfalls due to the La Nina weather phenomenon, leading to floods that not only disrupted harvesting activities but also risk pulling down oil extraction rates.

Add to that is India’s CPO import duty reduction by 10 per cent to 27.5 per cent from 37.5 per cent previously, effective Nov 27, 2020.

Adam said concerns about food security post-pandemic might also lend support to commodity prices including edible oils.

Meanwhile, he said demand growth would remain encouraging underpinned by a resilient export demand from China, India, the European Union, Middle East, and North Africa and higher domestic consumption through higher biodiesel mandate.

“We believe these developments would keep the inventory level below the two million-tonne level,” he said.

Plantation index rebounds more than 30 per cent

On Bursa Malaysia, the Plantation index has rebounded by more than 30 per cent since the start of the initial phase of the Movement Control Order in the middle of March this year while the underperforming FTSE Bursa Malaysia KLCI (FBM KLCI) index has gained by 2.7 per cent.

The plantation sector contributed around 10-11 per cent in terms of market capitalisation to the FBM KLCI.

Among the plantation players in the index constituents are Kuala Lumpur Kepong Bhd, Sime Darby Plantation Bhd (SDP), IOI Corporation Bhd, and PPB Group Bhd.

On a year-to-date basis, PPB Group recorded the smallest decline in market capitalisation compared with the other three players.

Emotional year for FGV

If Top Glove Corp Bhd is the flavour of the year for 2020 among its healthcare counterparts, in both pros and cons, FGV Holdings Bhd stole the limelight from the other plantation companies for a number of reasons.

The world’s third largest oil palm company by planted acreage saw its net profit for the third quarter ended Sept 30, 2020 rose to RM136.89 million compared with a net loss of RM262.41 million in the same quarter last year, while revenue increased to RM3.99 billion from RM3.55 billion previously despite being hit by a “series of drama”.

The company received an interest from Tan Sri Syed Mokhtar Shah Syed Nor Albukhary’s Perspective Lane (M) Sdn Bhd (PLSB) to participate via an injection of plantation assets into FGV for a share consideration but was reportedly being opposed by the federal government.

The Federal Land Development Authority (FELDA), which owns a 33.6 per cent stake in FGV, has also secured approval from the Cabinet to terminate its land lease agreement with FGV and planned to take over the FGV’s oil palm mills.

The government agency planned to raise its stake to more than 50 per cent and undertaking a mandatory takeover offer for the remaining shares it doesn’t own at RM1.30 a share.

In a filing with Bursa Malaysia on December 8, FGV said FELDA had entered into a conditional share purchase agreement with the Retirement Fund (Incorporated) to purchase 222.48 million FGV shares, representing a 6.1 per cent stake, for RM289.2 million or RM1.30 per share.

In a separate announcement, Maybank Investment Bank Bhd said FELDA had also entered into a share purchase agreement with Urusharta Jamaah Sdn Bhd to purchase 283.71 million FGV shares, representing 7.78 per cent equity interest in FGV, for RM368.8 million or RM1.30 per share.

CGS-CIMB Securities Sdn Bhd, in a research note, said the move was probably a more efficient way for FELDA to consolidate and restructure its assets and potentially a cheaper option than terminating its land lease agreement with FGV.

On external development, FGV is currently striving hard to get its Withhold Release Order (WRO) by the United States’ Customs and Border Protection (US CBP) repealed and had submitted a petition concerning allegations of using forced labour in its oil palm plantations.

The WRO was issued after a year-long investigation which revealed forced labour indicators including abuse of vulnerability, deception, restriction of movement, isolation, physical and sexual violence, intimidation and threats, and retention of identity documents, among others.

The US CBP had immediately issued an immediate ban on palm oil and palm oil products made by FGV, its units and joint-ventures.

Despite this predicament, FGV said the restrictions imposed on its products did not give a significant impact on the company nor the plantation industry as a whole as FGV only exported 40 tonnes of palm oil to the US.

However, another company which was also slapped with a ban in the US — SDP, was more concerned over the ban given that the country is an important growing market for its products.

SDP’s annual exports to the US stood at approximately RM20.8 million.

Market Outlook

The CPO price outlook in 2021 is forecast to be more favourable compared with the average prices in 2019 and 2020, depending on the development of La Nina on the soybean complex in South America and Indonesia’s B30 biodiesel mandate.

According to the Council of Palm Oil Producing Countries (CPOPC), the full implementation of the B30 mandate in Indonesia and the B20 mandate in Malaysia are crucial to sustain domestic consumption and absorb the anticipated palm oil supply growth.

It said a deficit situation in the global vegetable oils would lend support to CPO prices going into 2021.

“The Covid-19 pandemic is unlikely to have any severe impact on vegetable oil demand, including palm oil. This is because edible oils are daily necessities, be it as a kitchen staple, cleaning agent or renewable fuel, in many people’s lives throughout the world.”

In fact, the rising demand for oleochemical products has sustained the demand for edible oils, including palm oil, it added.

CPOPC is of the view that the palm oil price is likely to stay high in the first half of 2021 amid lower soybean crushing in Argentina and rising sunflower oil price. — Bernama

TheBorneoPost

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