Stimulus for palm oil price

KUALA LUMPUR: Sime Darby Bhd, the world's biggest listed palm oil producer, expects prices to trend within RM2,350-RM2,600 per tonne this year supported by Malaysia and Indonesia's biodiesel mandates.

"Indonesia and Malaysia are forecast to use three million tonnes and 660,000 tonnes of CPO for biodiesel blending, respectively," said Sime Darby executive vice-president of group strategy and business development Alan Hamzah Sendut told reporters on the sidelines of Invest Malaysia 2015 here yesterday.

The viability of biodiesel blending without subsidies is helped by world crude oil prices rebounding from a 6-year low for the past month. Yesterday, Brent, the global benchmark for crude oil traded at US$65 per barrel on the ICE Futures Europe Exchange. 

Earlier this week, Vitol Group, the world's biggest independent oil trader reportedly said crude prices will not fall below US$50 a barrel for sustained periods. 

Rising petroleum and gas prices for the past month is fuelled by slowdown in drilling in the US and improved global fuel demand. As Asian countries process more palm oil into biofuel and blend it with fossil fuel, palm oil prices start to increasingly move in tandem with Brent oil prices.

Yesterday, the third month benchmark contract on the Bursa Malaysia Derivatives Exchange slid RM2 to close at RM2,158 per tonne. Since the start of the year, crude palm oil (CPO) prices have averaged at RM2,203 per tonne. 

Last month Sime Darby completed the purchase of New Britain Palm Oil Ltd. This adds 79,884 ha of fully planted area to Sime Darby’s existing 525,290 ha of global oil palm landscape. 

Over the medium term, NBPOL’s favourable fresh fruit bunch yield of 21.7 tonnes a hectare and oil extraction rate of 22.2 per cent will enhance the group’s overall productivity level. 

Should palm oil prices climb higher, it will bode well on Sime Darby's earnings because the plantation business contribute almost half of the group's earnings.

In line with the five-year strategy blueprint for financial year 2012 until 2016, Alan said Sime Darby will continue to expand and strengthen its position in diversified business activities such as plantation, industrial, motor, property and energy and utilities.

Since the departure of SP Setia Bhd's former president and chief executive officer Tan Sri Liew Kee Sin about a year ago, rumours of Sime Darby's property arm possibly merging with SP Setia has been rife. 

It is seen to be a logical step to fill up the huge vacuum left by Liew and his team of loyal liutenants Datuk Teow Leong Seng and Datuk Voon Tin Yow.

Commenting on this, Alan said: "It's speculative. I don't know where this rumour come from. It's best that you ask PNB."

Permodalan Nasional Bhd (PNB) is the major shareholder of both SP Setia and Sime Darby.