MARKET DEVELOPMENT
Palm oil growers likely face minimal flood disruption
Palm oil growers likely face minimal flood disruption
23.12.2021 (www.theborneopost.com) - KUCHING: Analysts expect minimal impact from the severe flooding in Peninsular Malaysia following a cursory check on plantations there with exposures in the flood-affected states.
The team at Kenanga Investment Bank Bhd (Kenanga Research) found that unless the heavy downpour continues and spreads, the damage to oil palm trees should be minimal and yields immaterially affected.
“Oil palm loves rain, and oil palm estates in Indonesia and Malaysia rely on rain to thrive. Therefore, the plantation sector is not new to heavy rainfall or even occasional flooding,” it explained yesterday.
“Many players have invested in infrastructure to cope with heavy rain. Moreover, oil palms are tough trees and can endure most floods.”
The analysts noted that oil palm trees are also tall – a young 4-year is already two to three metres high while a prime 10-year palm stands five to six metres tall.
“The most common complaint regarding flooding in estates is the inability to harvest and collect the fruits,” it added.
So far, eight states have reported cases of flood, with some states facing more widespread flooding than others.
However, the actual impact on estate depends on where the estate is actually situated, its terrain and how effective the drainage is.
So far, a few estates located in Pahang, Selangor, Kelantan and Terengganu are affected by floods but unless the heavy downpour continues and spreads, Kenanga Research believed less than two to three per cent of the total area is estimated to be impacted.
“Even so, the damage is likely to temporary and minimal,” it added.
Looking at specific companies, Kenanga Research saw that FGV Holdings Bhd (FGV) is the most Peninsula-centric with 57 per cent of its estates located in West Malaysia, but it believed that less than three per cent of their estates are facing floods.
Sime Darby Plantations Bhd does have estates in coastal Selangor, with their well-known oil palm seed garden located in Banting, but the group has other seed gardens in Indonesia and Papua New Guinea, not to mention Tawau in Sabah.
Meanwhile, groups such as Hap Seng Plantations Bhd, Ta Ann Holdings Bhd or TSH Resources Bhd do not even have any estate at all in West Malaysia.
“Palm oil fundamentals over the next month or two suggest little room for bad news – be it unexpected labour shortages, poor weather or negative news from rival oil and fat complexes,” Kenanga Research added.
“As such if there is any negative development on the sector arising from the floods, crude palm oil prices are likely to stay firm longer.
“We are maintaining our earnings per share estimates as well as recommendation at this juncture,” it concluded, maintaining its neutral outlook for the palm oil sector.
https://www.theborneopost.com/2021/12/23/palm-oil-growers-likely-face-minimal-flood-disruption/