02/06/2008 (The Star Online) - MOST oil palm plantation companies in Malaysia have successfully locked in crude palm oil (CPO) prices at above RM3,000 per tonne under their forward sales policy this year.

Many players are diligently adopting either a two-month or three-month forward policy while the rest prefer to sell based on the spot prices, currently hovering between RM3,500 and RM3,700 per tonne.

Analysts contacted by StarBiz said that given such strong CPO prices, some planters had sold forward as much as 50% of their total production this year.

Plantation companies are showing good profits in their recent quarterly results, clearly driven by higher CPO average selling prices (ASP) and better production. Year-to-date, the average CPO spot price is about RM3,489 per tonne (2007: RM2,530.50), borrowing the strength of crude oil which surpassed US$130 per barrel recently.

Analysts are generally positive that earnings of most plantation companies will continue to be proxies to the rising CPO prices.

On the back of this rosy picture, higher fertiliser costs and fuel consumption are also putting pressure on oil palm planters' cost of production. This is ranging from at least RM500-RM730 per tonne for efficient players to about RM1,300 per tonne for less efficient and smaller players.

However, amidst this bullishness, a CPO trader said: “I expect CPO price to ease to RM3,200 in two weeks. The bubble in palm oil prices has reached its maximum. It is likely to burst and go down to RM2,500-RM2,800 per tonne in the second half of this year.”

Asiatic Development Bhd, a unit of Genting Bhd, has no forward sales policy and enjoys the full benefit of the CPO price upswing as it sells at spot prices.

Aseambankers analyst Ong Chee Ting said Asiatic stood to record an even better performance in the coming quarters.

The group achieved a higher ASP for CPO at RM3,403 per tonne in the latest first-quarter results for this financial year (FY) ending Dec 31, up 77% from RM1,925 per tonne in the first quarter of last year.

Aseambankers has raised its 2008 assumption for the ASP for for Asiatic to RM3,100 per tonne from RM2,500 previously.

Ong said: “We have also revised Asiatic's net profit higher by 25.7% in 2008 but down by 4.2% in 2009.”

IJM Plantations Bhd also has no fixed policy on forward selling.

The general guideline allows the group to sell forward only about 50% of its annual CPO production and not more than 12 months ahead.

For the fourth quarter ended March 31, the CPO price realised was RM3,126 per tonne compared with RM2,672 per tonne in the corresponding quarter last year.

“The increase in spread suggests that the company tried to lock in more sales at above RM3,000 per tonne,” OSK Research said in its latest note.

For the full year, IJM Plantations secured a CPO price of RM2,544 per tonne from RM1,511 last year.

Plantation giant IOI Corp Bhd, in the third quarter of its FY ending June 30, realised an ASP for CPO at RM2,705 per tonne.

OSK Research plantation analyst Alvin Tai said: “We believe IOI will report a stronger fourth quarter as the third quarter does not reflect the record CPO price in March due to its forward sale.

“We estimate that IOI had realised RM3,050 per tonne against the Malaysian Palm Oil Board average for Peninsular Malaysia at RM3,472 in March.” The brokerage forecast RM2.2bil plantation earnings before tax for the full year against RM1.3bil achieved so far.

Sime Darby Bhd, meanwhile, booked an ASP for CPO at RM3,101 per tonne for the current financial year ending June 30. Its latest third-quarter average CPO selling price was RM2,744.

Aseambankers, in its recent report, said Sime Darby sold forward about 1½ months of its production at over RM3,000 per tonne.

Citigroup also said that Sime Darby's cost of production was about RM1,100 per tonne in 2007 while the more efficient IOI Corp's was about RM730 per tonne.

If Sime can bring its costs down to be on a par with IOI's, Citigroup estimates that Sime's net profit could increase by some RM800mil.

Kuala Lumpur Kepong Bhd has locked in an ASP for CPO at RM2,750 per tonne in the first half year for financial year ending Sept 30 against RM1,800 in the same period of 2007.

Aseambankers said KLK sold 50% to 60% of its projected production under a two-month forward policy and should have secured a good price at about RM3,300 per tonne in recent months.

The brokerage said: “We have raised our assumption for the ASP of CPO for KLK at RM2,975 in FY08; RM2,550 in FY09 and RM2,450 per tonne in FY10.”

Tradewinds Plantation Bhd has locked in 18% of its total 2008 production of 1.3 million tonnes at an average price of RM3,300.

Analysts expect even better results in the subsequent quarters, given its recent strong results in the first quarter, which was seasonally its weakest.