MARKET DEVELOPMENT
CPO Plantations to Face Lower Demand From China, India
CPO Plantations to Face Lower Demand From China, India
12/09/2013 (The Star) - Fitch Ratings has warned that crude palm oil (CPO) plantation companies in Asia could face slower demand from its two largest import markets, China and India.
At this point the ratings impact from the potential headwind is Neutral, it said on Wednesday, but noted that there are risks going forward with "performance over the next 12 to 18 months subject to the intensity and duration of the decline."
The uncertainty regarding demand comes on top of the challenges faced by the industry at the end of 2012 of declining prices and inventory accumulation in Malaysia.
The industry managed to ride out these, thanks to stable demands, although with lower export realisations.
CPO prices plummeted to US$776/tonne in December 2012 from a peak of US$1,181 in April. However, prices recovered in 2013 - range-bound between US$840 and US$860 - mainly because of a liquidation of inventory, Fitch notes.
In Malaysia, export volumes in the January-July 2013 were up to 14.7 million tonnes period from 13.5 million tonnes previously, but the lower prices led to a decline in export realisations to US$743/tonne from US$993/tonne.
Fitch says the stable demand environment is now being threatened by lower exports to the two largest CPO importers.
"Lower CPO prices have led to lower revenue and operating profit, and higher financial leverage. Yet financial metrics are in line with the ratings. Indonesian and Malaysian CPO companies have maintained their credit profiles on the back of stable demand, despite the lower prices. Key risks are the intensity and duration of a potential demand slowdown, which may in turn depress prices further," says Fitch.
At this point the ratings impact from the potential headwind is Neutral, it said on Wednesday, but noted that there are risks going forward with "performance over the next 12 to 18 months subject to the intensity and duration of the decline."
The uncertainty regarding demand comes on top of the challenges faced by the industry at the end of 2012 of declining prices and inventory accumulation in Malaysia.
The industry managed to ride out these, thanks to stable demands, although with lower export realisations.
CPO prices plummeted to US$776/tonne in December 2012 from a peak of US$1,181 in April. However, prices recovered in 2013 - range-bound between US$840 and US$860 - mainly because of a liquidation of inventory, Fitch notes.
In Malaysia, export volumes in the January-July 2013 were up to 14.7 million tonnes period from 13.5 million tonnes previously, but the lower prices led to a decline in export realisations to US$743/tonne from US$993/tonne.
Fitch says the stable demand environment is now being threatened by lower exports to the two largest CPO importers.
"Lower CPO prices have led to lower revenue and operating profit, and higher financial leverage. Yet financial metrics are in line with the ratings. Indonesian and Malaysian CPO companies have maintained their credit profiles on the back of stable demand, despite the lower prices. Key risks are the intensity and duration of a potential demand slowdown, which may in turn depress prices further," says Fitch.