15/03/2009 (The Jakarta Globe) - Industry analysts are warning that the production and profit of leading crude palm oil producer PT Astra Agro Lestari Tbk will be stagnant at best this year on the back of weak demand and a glut of palm oil on the world market.

Astra Agro posted a record profit last year of Rp 2.715 trillion ($228 million), up about a third from Rp 2.039 trillion in 2007.

“Last year, the company benefited from a bumper harvest and good prices .?.?. that’s exceedingly unlikely to occur again this year,” Asti Pohan, an analyst at PT BNI Securities, said on Friday.

Muhamad Reza, an analyst at PT Erdhika Securities, predicted that Astra Agro’s net profit would decline by 39 percent to Rp 1.634 trillion this year, due to significantly weaker prices in 2009 compared with the “extraordinary prices” of last year.

On price levels, Reza said he expected CPO prices to stabilize at about Rp 5,000,000 per ton this year, with an expected prolonged dry season putting a halt to production growth. Since reaching a high of Rp 15.50 million per ton in March last year, palm oil prices slumped to Rp 4.65 million in October. Prices have since risen to about Rp 6.33 million.

“As meteorologists are forecasting a long dry season this year, due to La Nina, it’s likely to put a brake on palm oil production, as well as production of soy bean and canola, the other substitutes for CPO in producing cooking oil,” he added.

Astra Agro’s annual production last year stood at 980,000 tons of CPO, up by 6 percent from the 920,000 tons recorded in 2007.

Asti said that she expected this year’s production to increase very slightly to between 980,000 and just over 1 million tons.

“We know that their production has more or less reached its maximum at the moment, with most of their trees about 14 years old,” Reza said.

Astra Agro has said that it plans to focus on replanting over the next five years, as more than 80 percent of its palm trees are more than 10 years old.

Relatively young palm trees — less than five years old — account for only 7.8 percent of Astra Agro’s trees, while medium-age trees — between six and nine years old — account for 5.3 percent.

Astra Agro continues to lead the industry in production efficiency at 24.6 percent currently, up slightly from 24.5 percent last year.

“This means that for every 1 million tons of fruit bunches harvested, Astra Agro can produce 240 tons of CPO,” said Reza.

Two of Astra Agro’s biggest competitors, PT London Sumatra Tbk and PT Sampoerna Agro Tbk, enjoy efficiency levels in the low-20 percent range — only slightly lower than Astra Agro.

The company also saw production of fruit bunches increase by 6.5 percent to 3.987 million tons in 2008, up from 3.743 million tons in 2007.

Analysts remains divided on Astra Agro’s prospects . Of the 26 analysts polled by Bloomberg, seven gave a “buy” recommendation, while eight recommended “hold,” and nine “sell.” Asti maintained her “hold” rating, while Reza recently issued a “sell” recommendation. The company’s shares closed up Rp 400, or 3.2 percent, at Rp 12,900 in Jakarta on Friday.