FGV sees significant drop in palm oil output due to Covid-19 control order

KUALA LUMPUR: FGV Holdings Bhd, the largest crude palm oil (CPO) producer in the country, warned its palm oil output is poised to drop this year, as the movement control order (MCO) since March 18 limit the strength of its plantation workforce.

"In terms of our crops, we are projecting a significant shortfall in production in 2020," chief executive officer Datuk Haris Fadzilah Hassan said in the group's latest annual report.

In 2019, FGV said fresh fruit bunches (FFB) production climbed 5.6% to 4.45 million tonnes, while CPO output rose to 3.07 million tonnes from 2.82 million tonnes previously.

Haris said the MCO has affected the group's performance this year, which has curtailed its workforce strength, shuttered businesses and limited movement of consumers.

"For our downstream business, we are expecting a reduction in processing volume especially for the export and bulk product segments," he said.

Haris said, will do its best to mitigate these challenges and will be reviewing its strategies to reduce the virus impact on its operations.

FGV has a total plantation landbank of 439,230 hectares in Malaysia and Indonesia. This includes 351,000 hectares under the land lease agreement with Felda.

The total palm oil planted hectarage in Malaysia is 338,437 hectares.

Meanwhile, the group sees CPO prices to trade at between RM2,400 and RM2,200 a ton this year, with tight supply and higher biodiesel mandate in Malaysia and Indonesia to support prices.

"China's recovery from the pandemic...provides relief as demand for CPO is expected to increase as China replenishes its stockpile," FGV said in its outlook for the commodity.

The company, however, said that competition from lower cost producer Indonesia, as well as Covid-19 challenges in other key importing countries to cap further price increases.

"While CPO price remains stable in the first quarter of 2020 in spite of Covid-19 challenges, the duration for recovery from the pandemic across the world is crucial for the CPO outlook," it said.

The price of CPO futures contracts on Bursa Derivatives had dropped 30% so far this year on demand worries and the plunge in the price oil crude oil.

At yesterday close, the benchmark third month CPO futures contract settled at RM2,051 a tonne. The contract was traded at just above RM3,000 a ton in January.