Weak palm oil prices

KUALA LUMPUR: Investors generally think crude palm oil (CPO) prices are likely to stay weak in the near term, said CIMB Research analyst Ivy Ng.


Yesterday, the third month benchmark crude palm oil futures on Bursa Malaysia Derivatives market fell RM70 to close at RM1,916 per tonne.

Last Thursday, CPO prices sank below the psychological low price threshold of RM2,000 per tonne. This week, it looks like the disappointing perfomance will continue and sink below the next low threshold of RM1,900 per tonne.

Despite the current negative sentiment, CIMB Research maintained its “neutral” rating for the plantation sector and forecast CPO price is likely to average at RM2,230 per tonne this year.

Ng thinks CPO prices would likely bottom out towards the end of the year before staging a recovery on the back of concern over the impact of El Nino-induced drought on palm oil supplies and stronger demand on Indonesia’s biodiesel implementation progress. 

Persistent weak CPO prices for the past year is translating to falling profits in plantation companies quarterly results.

Felda Global Ventures Holdings Bhd yesterday announced its second quarter net profits ended June 2015 plunge 70 per cent to RM46.09 million from RM151.86 million. This is despite an 8 per cent increase in its second quarter revenue to RM4.19 billion from RM3.87 billion.

In its filing to Bursa Malaysia yesterday, FGV said it does not expect recovery in the market in the second half of the year, given the difficult business environment and uncertain market.

FGV said CPO price was not likely to rebound for the rest of the year. "Although CPO price has fallen considerably, further downside is still possible," it said.

On the whole FGV assured investors that its transformation plans is being carried out to improve operational efficiencies throughout the value chain from upstream to the downstream production.

Separately, IOI Corp Bhd, in its filings to the stock exchange, said CPO price to likely to stay mostly flat in the next three months. 

It is hopeful that Indonesia's B15 biodiesel programme and the likelihood of severe dry weather in the coming months will help counter the current weak CPO sentiment caused by the soft soybean prices and the expectation of seasonally higher production of oil palm fruits. 

IOI Corp's fourth quarter net profits ended June 2015 plunged 60 per cent to RM159.70 million from RM407.50 million. This is despite a 4 per cent higher revenue in its to RM2.94 billion from RM2.83 billion previously.

IOI Corp said its specialty oils and fats sub-segment is expected to perform well given the geographical spread of its operations in the US and Europe.

Its oleochemicals business will also likely to perform satisfactorily with the lower palm kernel raw material cost and higher glycerine price. 

"The volatility of US dollar ringgit exchange rate will continue to impact our paper gain or loss in foreign exchange arising from our medium to long dated US dollar denominated borrowings," it said.