Malaysia sees La Nina pushing CPO prices above RM3,000/tonne

Second wind: Tan Sri Lee Shin Cheng says the price of CPO will shoot up to RM3,300 per tonne if La Nina sets in.

PUTRAJAYA: The local plantation industry is expecting crude palm oil (CPO) prices to cruise comfortably above RM3,000 per tonne if La Nina sets in, according to IOI Corp Bhd founder and executive chairman Tan Sri Lee Shin Cheng.

La Nina, which brings in heavy rainfall, is favoured for fresh fruit bunch (FFB) development and higher yields in oil palms, in comparison to the recent El Nino dry weather phenomenon that disrupts yields in estates.

“The CPO price is currently very strong, hovering within the range of RM2,750 to RM2,800 per tonne.

“However, if La Nina sets in, I think the price will shoot up to RM3,300 per tonne,” Shin Cheng said after the group’s AGM yesterday.

According to a recent MIDF Research report, the Australia Bureau of Meteorology (ABM) has said that the chances of a La Nina forming during year-end stands at a minimum 50%, which is double the usual likelihood.

Of the eight international climate models surveyed by ABM, seven climate models suggest that sea surface temperatures will reach or exceed La Nina thresholds by this November.

“If La Nina is confirmed, then we expect excessive rains in Malaysia and Indonesia, which usually cause floods and affect palm oil production in flood-prone states.

“The magnitude of the impact will depend on whether La Nina eventually materialises, and its strength.

“Coupled with the labour shortage issue in the industry, we expect the palm oil price to surge to RM3,500 per tonne if a strong La Nina materialises,” said MIDF Research.

Meanwhile, on the corporate front, IOI Corp is looking to expand its downstream products’ reach to West Africa and the Middle East market.

Group CEO Datuk Lee Yeow Chor said the Malaysian Palm Oil Council (MPOC) had recently attended a palm oil seminar in Ghana, as part of the council’s efforts to expand the Malaysian palm oil market in West Africa.

“Countries like Iran in the Middle East have shown promising prospects.

“Iran’s palm oil consumption has grown by 100% this year compared to last year,” said Yeow Chor, who is also the chairman of MPOC.

Apart from that, IOI Corp is targeting to increase its crop production by about 10% from the previous financial year.

This shall be driven by the recovery from El Nino’s drought effect over the past two years as well as the group’s new plantation areas in Indonesia, whereby the oil palms are now coming into maturity and prime age.

For the financial year ended June 30, IOI Corp’s FFB production amounted to 3.16 million tonnes.

Yeow Chor explained that the group does not set a hard target in terms of plantation earnings projections, as “it is very much dependent on the volatile CPO or palm kernel prices”.

Going forward, IOI Corp intends to focus more on upstream investment opportunities.

IOI Corp plans to increase its plantation land bank by acquiring brownfield plantations located in Malaysia, although there is no target land bank size to be achieved and the location and size would depend on the available land bank opportunities.

In addition, Yeow Chor is confident that after selling the 70% stake in the specialty fats business IOI Loders Croklaan Group BV to global agribusiness and food company Bunge Ltd, the business will grow much faster with Bunge’s help.

IOI Corp expects the stake disposal to be completed between June and September next year.

An estimated 25% of the proceeds shall be allocated for future investments across a span of two years after the transaction has been completed.

“We have been investing a lot in downstream over the past few years. So, it is going to be a realignment or rebalancing of investments.

“A natural hedge or synergy between downstream and upstream is always very important to us and it has always given us a relatively stable profit.

“We will continue to maintain that,” he said, adding that the group’s oleochemical business is improving.

IOI Corp closed 0.7% higher at RM4.52, traded on a volume of 1.88 million shares.

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