05/06/2012 (Jakarta Post) - Crude palm oil (CPO) producer PT Sinar Mas Agro Resources and Technology (SMART), the plantation arm of Sinar Mas Group conglomerate, is expecting higher production this year as a predicted decline in global commodity prices might constrain the company’s earnings.

SMART will grow its CPO output by between 8 and 10 percent this year compared with 2011, director and corporate secretary Jimmy Pramono said on Monday.

That would mean 765,803 to 779,984 metric tons production this year, in reference to the company’s 2011 CPO output of 709,077 metric tons.

“The increase may not be seen in the first quarter of this year. We will see it later in the second semester,” Jimmy said after announcing between 8.25 and 9.5 percent coupon rate for SMART’s Rp 1 trillion (US$106 million) bonds in three and five years maturity.

The company has produced 168,015 metric tons of CPO in the first three months of this year, up 3.65 percent from 162,087 metric tons in the same period last year.

Fresh fruit bunches (FFB) production was rather flat at 648,242 metric tons in the first quarter of this year compared with a year ago, while kernel output was up by 11 percent to 38,780.

The expected increase in CPO production may boost the company’s revenue by 5 to 8 percent, according to Jimmy. Commodity producers are facing difficult times from slowing global demand, which weakens prices, affecting their business earnings.

About 20 to 30 percent of SMART’s exports were directed to China, which is experiencing an economic growth slowdown and therefore weakening demand from the world’s second largest economy.

The company’s exports last year accounted for 83 percent of total revenue, with Jimmy still not considering reducing export volume to China on optimism that demand will still exist.

SMART has not revealed its first quarter financial performance. The company reaped Rp 31.68 trillion in revenue last year with an average CPO price of $1,083 per ton free on board (FOB) from Belawan North Sumatra.

The company expected the CPO price to remain above $1,000 per ton this year.

It currently has 15 CPO mills with total capacity of processing 3.9 million metric tons of FFB per year.

The company also has four refineries, which process CPO into downstream products, including cooking oil, margarine and specialty fats.

The refineries, located in South Kalimantan, Marunda of North Jakarta, Surabaya and Belawan of North Sumatra, have total capacity of 1.38 million metric tons per annum.

SMART is planning to increase the capacity of its South Kalimantan refinery to 3,000 metric tons per day from the current 1,000 metric tons and also increase the kernel crushing plant capacity by 1,200 metric tons per day.

The company will use some of the funds to be gained from the Rp 1 trillion bond issuance to support the refinery and crushing plant upgrade.

The proceeds might also be used to support an upgrade of its refinery in Marunda, according to Jimmy.

“However, the funds needed may be lower than the allocation for South Kalimantan facilities because upgrading of Marunda facilities will not include the upgrade of a kernel crushing plant,” Jimmy said, adding that after the upgrade Marunda will have a refinery with 2,000 metric tons of capacity from 800 metric tons at present.

As of the end of March, SMART has 138,719 hectares of planted areas in which 131,504 hectares are producing areas.

Shares in SMART dropped 8.57 percent on Monday’s trading to close the day at Rp 6,400.