IJM Plantations "cautiously" optimistic about outlook despite CPO price rally
21.09.2020 (www.nst.com.my) - KUALA LUMPUR: IJM Plantations Bhd is cautiously optimistic about industry outlook despite crude palm oil (CPO) price having rallied to RM3,000 per tonne from the year-to-date low of RM2,000 per tonne in May.
This is given that the Covid-19 pandemic is still evolving globally and uncertainties remain in the market in the short term.
IJM Plantations, in a statement after its 35th annual general meeting today, said besides that, analysts had opined that the higher prices were partly attributable to the increase in demand for palm oil products.
This was due to stock replenishment, lower palm oil inventory levels as well as an increase in prices of competing edible oil.
"While the above factors can be bullish, there could always potentially be a pullback in prices amid pressure from rising stock levels towards year-end in line with palm oil production potentially outweighing total exports and consumption."
IJM Plantations, however said the recent revelations that many planters were in real and substantial shortage of workers which hampered operations especially during the seasonal peak crop and affected crop recovery from the trees, would render support to present CPO prices.
The company said having both upstream operations in Malaysia and Indonesia, its overall crop production as well as CPO production this year might end up lower than in the preceding year.
The may also be the common trend across the palm oil industry over the period.
As per Malaysia Palm Oil Board (MPOB) reports, crop production in Malaysia for the first seven months in 2020 was trailing behind last year by 671,619 tonnes or 5.8 per cent.
IJM Plantations feels that crop output in top producing countries Malaysia and Indonesia during the expected peak production period of year end 2020 could further disappoint.
On the other hand, the company believes that global demand for palm oil was poised to recover.
This will be thanks to easing of Covid-19 lockdowns across the globe and as well as major consumers such as China and India returning to the market, boosting purchases to replenish their dwindling stock.
An added push in the use of more palm oil in biofuels, particularly by Indonesia will augur well towards lowering the stocks and increasing the price.
But this would be correlated to petroleum crude oil prices, IJM Plantations said.
"Stronger crude oil makes palm oil a more attractive option as biodiesel feedstock," it added.
Indonesia recently announced that it might further increase palm oil export levies to support its ambitious biodiesel programme as the price of crude oil was expected to remain weak.
Meanwhile, IJM Plantations said high fresh fruit bunch (FFB) production, higher sales volume and improved commodity prices had driven its revenue by 17 per cent to RM739.13 million for the year ended March 31, 2020.
Its FFB production during the financial year hit a new high at 1.06 million tonnes, or nine per cent increase over the preceding year.
"This is set against more areas attaining maturity and moving closer to prime production age in the Indonesian operations coupled with some recovery from the earlier El Nino lagged effects," it said.
However, the company ended the financial year in a loss position before tax of RM50.47 million.
This was mainly due to the significant devaluation of the Indonesian rupiah against the US dollar and the Japanese yen that resulted in a net unrealised foreign exchange (forex) loss of RM87.11 million against RM25.79 million in the preceding year on its US dollar and Japanese yen-denominated borrowings.
Notwithstanding this, its operating profit excluding forex and interest were up by 775 per cent to RM59.5 million from RM6.8 million in 2019.