MARKET DEVELOPMENT
Upcoming Result season to Be Stronger for Planters — Except Sarawak
Upcoming Result season to Be Stronger for Planters — Except Sarawak
22/02/2014 (Borneo Post) - The upcoming results season will be the strongest of recent quarters on higher crude palm oil (CPO), higher palm kernel average selling prices and stronger output — except for Sarawakian planters.
Analysts at Maybank Investment Bank Bhd (Maybank Research) said Malaysian planters recorded stronger quarterly growth of fresh fruit bunches (FFB) in the final quarter of 2013, with the exception of Sarawakian plantation players as their output has already peaked in the third quarter.
“Companies with greater exposure in Sabah, such as TSH Resources Bhd, Genting Plantations Bhd and IOI Corporation Bhd posted their strongest output in 4Q13,” it added.
“On a year-on-year comparison, Sime Darby Bhd and Kuala Lumpur Kepong Bhd posted lower production due to biological tree stress.”
Upstream planters are expected to outperform mid- to downstream players in the fourth quarter, Maybank Research said, adding that in the past three quarters, mid-to-downstream players enjoyed good operating margins benefitting from low feedstock costs.
“This is set to reverse in the fourth quarters as higer CPO price and new refining capacities that came on stream in Indonesia towards the end of 2013 have intensified competition and squeezed refining margins.”
The jump in palm kernel prices will also compress oleochemicals operating margins too, it added, unless they have some hedging practices in place.
“We reiterate our view that CPO prices will remain relatively resilient in 1Q14 due to biological tree stress and that the industry enters into seasonally-lower production months between February and April.
“We also expect CPO prices to stay firm around RM2,600 per tonne, possibly trading up to RM2,800 per tonne.”
Maybank Research took into account the market pricing in some weather risks for now, due to the lack of rainfall in Malaysia and parts of Brazil, while excess rainfall in Argentina has also led to some crop damage.
“Nevertheless, we caution that CPO prices will likely weaken to between RM2,400 to RM2,600 per tonne towards the May-June period as South American harvests hit the market.”
This is in addition to US soybean planting starting – likely a record high given weakened corn prices – and the market pricing a stronger CPO output in 2H14.
Analysts at Maybank Investment Bank Bhd (Maybank Research) said Malaysian planters recorded stronger quarterly growth of fresh fruit bunches (FFB) in the final quarter of 2013, with the exception of Sarawakian plantation players as their output has already peaked in the third quarter.
“Companies with greater exposure in Sabah, such as TSH Resources Bhd, Genting Plantations Bhd and IOI Corporation Bhd posted their strongest output in 4Q13,” it added.
“On a year-on-year comparison, Sime Darby Bhd and Kuala Lumpur Kepong Bhd posted lower production due to biological tree stress.”
Upstream planters are expected to outperform mid- to downstream players in the fourth quarter, Maybank Research said, adding that in the past three quarters, mid-to-downstream players enjoyed good operating margins benefitting from low feedstock costs.
“This is set to reverse in the fourth quarters as higer CPO price and new refining capacities that came on stream in Indonesia towards the end of 2013 have intensified competition and squeezed refining margins.”
The jump in palm kernel prices will also compress oleochemicals operating margins too, it added, unless they have some hedging practices in place.
“We reiterate our view that CPO prices will remain relatively resilient in 1Q14 due to biological tree stress and that the industry enters into seasonally-lower production months between February and April.
“We also expect CPO prices to stay firm around RM2,600 per tonne, possibly trading up to RM2,800 per tonne.”
Maybank Research took into account the market pricing in some weather risks for now, due to the lack of rainfall in Malaysia and parts of Brazil, while excess rainfall in Argentina has also led to some crop damage.
“Nevertheless, we caution that CPO prices will likely weaken to between RM2,400 to RM2,600 per tonne towards the May-June period as South American harvests hit the market.”
This is in addition to US soybean planting starting – likely a record high given weakened corn prices – and the market pricing a stronger CPO output in 2H14.