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

  • Corporate News
  • Wednesday, 10 Oct 2018

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
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