Palm oil firms face challenges on weak prices, sustainability, says Fitch Solutions

The benchmark palm oil contract for December delivery on the Bursa Malaysia Derivatives Exchange rose 0.32 percent to 2,188 ringgit ($528.50) per tonne by the midday break. Palm oil posted a combined 1.8 percent gain in the previous two sessions, after hitting a three-year low last week.

KUALA LUMPUR: Palm oil companies will see declining or slow growth in revenue and margins in FY2018-19 as prices stay weak, Fitch Solutions says.

In its report issued on Tuesday, it said prices will remain weak in coming months.

It expects crude palm oil prices to average RM2,340 a tonne in 2018; versus RM2,704 in 2017.

Strong U.S. dollar over most of this year may mitigate impact on earnings

Palm prices estimate to average RM2,400 a tonne.

Fitch Solutions said companies with plantations in Malaysia likely to struggle more due to “significant hurdles to production” that’s linked with labour shortages.

* Probability of El Nino has increased, a “fully blown” El Nino would impact palm sector

* Indonesia already suffering from dry weather conditions which may hurt output in 2019

* Companies will keep capex lower to focus on improving yields and sustainability

* "M&A activity may accelerate due to stringent rules on plantations, as acquiring young palm estates could support earnings growth

* "Poor sustainability practices are a risk to business, may threaten global palm oil demand

*"Producers also facing stagnating yields, peaking planted area in Southeast Asia, labour issues

* "Rising minimum wages, tighter immigration laws are hurting production in Malaysia," it said. - Bloomberg