BOUSTEAD Holdings Bhd believes palm oil prices will bounce back to between RM2,000 and RM2,200 a tonne in the first six months next year, boosted by shipments to China and the government's effort to cut stockpiles.
Prices of the commodity have already fallen 66 per cent from their peak of RM4,486 a tonne in March, to RM1,510 for February delivery, yesterday.
The major owner of the plantation Al-Hadharah REIT is, however, convinced that prices will improve in the first half next year.
"Crude palm oil (CPO) is mainly used for food. We believe the buyers from China will continue to use palm oil because of the price difference - it's now at a US$300 discount to soya oil. That's quite attractive," Boustead group managing director Tan Sri Lodin Wok Kamaruddin said at a press conference in Kuala Lumpur yesterday.He blamed the current weak CPO prices on excess stocks due to high production, as well as the falling crude oil price which has dropped drastically from nearly US$150 (RM545) a barrel not too long ago to below US$45 (RM163) currently.
CPO prices have been tracking that of crude oil because it can be used to produce biofuel.
The government has also announced plans to boost the usage of palm oil, which will help to cut stockpiles, Lodin Wok said.
This includes getting government vehicles to switch to biofuel for power, a plan that will later involve industrial vehicles, he said.
The government has also set aside RM200 million to speed up the replanting of oil palm trees that are more than 25 years old.
Boustead is selling two more estates into the Al-Hadharah REIT, boosting the world's first Islamic plantation property trust to RM805 million.
The REIT, 60.5 per cent held by Boustead after the asset sale, is paying RM188.8 million for both the Malakoff and Bebar estates.
With a low gearing of 15 per cent, Lodin Wok said, the REIT aims to buy more assets to expand its size. A REIT cannot exceed 50 per cent gearing under the Securities Commission's rule.
Something2Share:
One morning I was talking to RS, a plantation owner, as we were doing brisk walking at the golf course in Segamat Country Club. He was puzzled why the drastic drop in CPO price was linked to falling crude oil price. Previously, the rise or fall of CPO price was linked mainly to soya oil price.
This morning as I was talking to Mr. Khor, a tractor dealer, he reminded me that the unusual escalating CPO price was in fact boosted up in the name of BIOFUEL due to the skyrocketing crude oil price. It reached the record high at USD 147.27 a barrel in mid-July 2008.
I think many plantation companies and owners can still be lauging to the bank if the CPO prices will be traded between RM 2,000 - 2,000 per tonne.
By rough calculation, if COP (Cost of Production) is estimated at RM1,500 per tonne of CPO, and the trading price is expected to be traded at RM2,200 per tonne, then the profit margin will be about 47%.
If COP is estimated at RM1,300 per tonne of CPO, and the trading price is expected to be traded at RM2,000 per tonne, the profit margin wii be about 54%.
Perhaps instead of focusing on how, where and when to cut cost, we should look at ways and means to increase oil yield per hectare in order to reduce COP. Any attempt to cut fertilizer input will affect the yield quite adversely 2 years later.
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