IOI Corp: CPO prices to firm up next quarter

PUTRAJAYA: IOI Corp Bhd has cut its fresh fruit bunches (FFB) growth target to three per cent amounting to 3.6 million tonnes for the current year ending June 2016 due to ongoing drought and hazy weather.

The group had initially forecast eight per cent growth to 3.8 million tonnes.

IOI Corp chief executive officer Datuk Lee Yeow Chor said the current hazy condition in Malaysia and Indonesia is very likely to curb FFB production.

"With dry weather and the haze leading to less sunlight hours for the trees, fruit yield across Malaysia and Indonesia could drop six months from now," he told reporters after the company's shareholders' meeting, here, yesterday.

However, Lee assured that it will not have a negative impact on the company's profit as low production will likely boost crude palm oil (CPO) prices.

Weather experts have issued several reports stating the ongoing El Nino weather phenomenon can have a significant impact on oil palm FFB output, and, therefore, counter the current weak palm oil price sentiment.

In view of this, Lee expects palm oil prices, now trading around RM2,300 per tonne for the past month, to firm up on the back of seasonal low output.

"There is a good chance for CPO prices to trade up further by the beginning of next year," he said.

On the government's move to raise the minimum wage beginning July next year, Lee said for plantation companies the 11-15 per cent increment is not as steep as the last round of major wage hike for Malaysian estate workers of RM200 per month that occurred from 2011 to 2013.

He said most of IOI estate workers are earning well above the minimum wage threshold. "Out of 25,000 of our staff at the estates, around 15 per cent will be impacted by the 2016 Budget announcement," he said.

When asked if dividend payout for the current year could match last year's nine sen a share, Lee replied, "if CPO prices were to go on an uptrend, we would be able to perform better and then pay out more dividends".