MARKET DEVELOPMENT
Palm Oil Players Set to Gain by Depreciation of Ringgit
Palm Oil Players Set to Gain by Depreciation of Ringgit
11/02/2014 (The Star) - The fortunes of plantation companies hit by the weaker crude palm oil (CPO) price last year are set to improve, at least in the first quarter of this year, bouyed by the current depreciation of the ringgit, which pushed CPO to trade at its one-month high of above RM2,600 per tonne yesterday.
At the close, the third-month benchmark CPO futures for April settled RM38 higher at RM2,616 per tonne, as market sentiment was well supported by the lower-than-expected palm oil stock figures by the Malaysian Palm Oil Board (MPOB) and tight supply in the soybean-producing countries of Brazil and Argentina.
MPOB said the palm oil inventory in January had fallen 2.63% to 1.93 million tonnes, the lowest in three months, while CPO production eased 9.6% to 1.50 million tonnes from a month earlier.
For the month under review, palm oil exports also dropped 9.9% to 1.37 million tonnes from 1.52 million tonnes previously. Interestingly, biodiesel exports registered a 34% increase to 4,356 tonnes from 3,237 tonnes a month earlier.
Market analysts said that plantation companies stood to benefit from the weaker ringgit, given the fact that palm oil was an export-oriented commodity using the US dollar or other foreign currencies, while the planters’ cost of production was ringgit-denominated.
The average cost of production among efficient planters in Peninsular Malaysia is between RM1,400 and RM1,500 per tonne.
“The weaker ringgit is also making palm oil attractive to price-sensitive countries like China and India, which, in turn, are major global buyers of edible oils,” a trader said.
He expects CPO price to average RM2,700 per tonne this year compared with RM2,574.50 last year.
Among plantation companies, a mere RM100 increase in the CPO price per tonne could translate into additional “hefty” contributions to group profits.
Sime Darby Bhd president and group chief executive Tan Sri Mohd Bakke Salleh had said recently that every RM100 per tonne change in the CPO price would result in an “addition or reduction of RM250mil” to the group’s profit.
Similarly, Felda Global Ventures Holdings Bhd had reported in June last year that every RM100 change in the CPO price would result in an addition or reduction of RM100mil.
Sabah-based Kretam Holdings Bhd plantation director Wong Len Kee, meanwhile, told StarBiz recently that the group’s net profit was expected to increase by about RM10mil to RM12mil for every RM100 increase in the CPO price.
JF Apex Securities has maintained its “overweight” rating on the plantation sector.
The brokerage, in its report yesterday, said it expected CPO price to average at RM2,850 per tonne this year as opposed to the spot CPO price average of RM2,367 per tonne last year.
At the close, the third-month benchmark CPO futures for April settled RM38 higher at RM2,616 per tonne, as market sentiment was well supported by the lower-than-expected palm oil stock figures by the Malaysian Palm Oil Board (MPOB) and tight supply in the soybean-producing countries of Brazil and Argentina.
MPOB said the palm oil inventory in January had fallen 2.63% to 1.93 million tonnes, the lowest in three months, while CPO production eased 9.6% to 1.50 million tonnes from a month earlier.
For the month under review, palm oil exports also dropped 9.9% to 1.37 million tonnes from 1.52 million tonnes previously. Interestingly, biodiesel exports registered a 34% increase to 4,356 tonnes from 3,237 tonnes a month earlier.
Market analysts said that plantation companies stood to benefit from the weaker ringgit, given the fact that palm oil was an export-oriented commodity using the US dollar or other foreign currencies, while the planters’ cost of production was ringgit-denominated.
The average cost of production among efficient planters in Peninsular Malaysia is between RM1,400 and RM1,500 per tonne.
“The weaker ringgit is also making palm oil attractive to price-sensitive countries like China and India, which, in turn, are major global buyers of edible oils,” a trader said.
He expects CPO price to average RM2,700 per tonne this year compared with RM2,574.50 last year.
Among plantation companies, a mere RM100 increase in the CPO price per tonne could translate into additional “hefty” contributions to group profits.
Sime Darby Bhd president and group chief executive Tan Sri Mohd Bakke Salleh had said recently that every RM100 per tonne change in the CPO price would result in an “addition or reduction of RM250mil” to the group’s profit.
Similarly, Felda Global Ventures Holdings Bhd had reported in June last year that every RM100 change in the CPO price would result in an addition or reduction of RM100mil.
Sabah-based Kretam Holdings Bhd plantation director Wong Len Kee, meanwhile, told StarBiz recently that the group’s net profit was expected to increase by about RM10mil to RM12mil for every RM100 increase in the CPO price.
JF Apex Securities has maintained its “overweight” rating on the plantation sector.
The brokerage, in its report yesterday, said it expected CPO price to average at RM2,850 per tonne this year as opposed to the spot CPO price average of RM2,367 per tonne last year.