Sime Darby sees CPO prices facing strong headwinds


  • Plantations
  • Saturday, 29 Feb 2020

Helmy said that the ongoing trade spat between India and Malaysia with the former restricting its palm oil purchase for Malaysia and focusing to buy more from Indonesia, has changed the dynamics of the vegetable oil markets.

KUALA LUMPUR: Sime Darby Plantation Bhd (SDP) expects the plantation industry and crude palm oil (CPO) prices will continue to face strong headwinds this year, particularly from the implication of the Covid-19 coronavirus outbreak and the ongoing trade spat between India and Malaysia which is restricting the exports of local palm oil.

Group managing director Mohamad Helmy Othman Basha said “It is still going to be a challenging time ahead for industry players.

“If not for the Covid-19 coronavirus, I believe that the CPO price now could have been traded higher than the current RM2,400-RM2,500 per tonne range

“One consolation is that the current CPO production in major producing countries is low amid the higher biodiesel programme mandates – B30 in Indonesia and B20 in Malaysia.

“This somewhat helps to cushion the CPO prices (from falling further), ” he told reporters at a media briefing to announce SDP’s financial year ending Dec 31,2019 (FY2019) results here yesterday.

On SDP’s palm oil exports to China, Helmy pointed out that the group does not faced any problems with its shipment to China in January.

But since then, demand seemed to have “dried-up” from the republic.

“But then, China has never been a major market for SDP. Last year, we sold less than 100,000 tonnes to China, out of our total annual production about 2.4 million tonnes.

This is in contrast to India, which is a big market for SDP.

Helmy said that the ongoing trade spat between India and Malaysia with the former restricting its palm oil purchase for Malaysia and focusing to buy more from Indonesia, has changed the dynamics of the vegetable oil markets.

“Given the increasing demand for Indonesia’s palm oil by India, the Indonesian palm oil price discount to local palm oil has narrowed significantly and to a certain extent, there is no more CPO price discount between Malaysian and Indonesian palm oil, ” he added.

Having said that, SDP still has the advantage to export to India given its vast plantation operations in Indonesia.

Helmy added that “We can still export via Indonesia. Hence, the impact of India trade spat with Malaysia is very minimal to us.”

Meanwhile, SDP posted a net loss of RM45mil in the fourth quarter of FY2019 compared with a net profit of RM172mil in the same quarter the previous year.

For full year 2019, the group reported a net loss of RM200mil against a net profit of RM523mil a year earlier but it expects the recovery in palm products prices to contribute positively to its performance in 2020.

The 2019 results was impacted by a one-off impairment change of RM235mil on its assets in Liberia, Helmy pointed out.

However, this will be the final impairment made for its Liberia assets which has since been divested.

“The Liberian assets is a legacy issue for SDP which has been a drag to our bottomline for the past three to four years.

“From now onwards, there will be no more big legacy issue for SDP, ” Helmy said adding that the divestment of the Liberian assets would enable SDP to prevent further losses in its books and reallocate its financial resources into areas that can create value for the Group and its shareholders.

The completion of the disposal is expected to generate a gain of RM74mil in 2020.

At the same time, the group is also on track with its deleveraging journey.

Helmy noted that SDP’s RM3.9bil debt refinancing exercise – is credit positive which will improve its liquidity and extend its debt maturities as pointed out by Moody’s recently.

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