Boustead: CPO will rebound in first-half 2009

The major owner of the plantation Al-Hadharah REIT (Real Estate Investment Trust) expects palm oil prices to trade between RM2,000 and RM2,200 a tonne.

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.

Higher palm oil prices expected in 2009

Global palm oil prices are likely to rise in 2009 as stocks in key exporters Malaysia and Indonesia fall, Hamburg-based oilseeds analysts Oil World said yesterday.

“The palm oil market is torn between the bearish outside developments, especially very weak crude mineral oil, and its own constructive longer-term fundamentals,” it said.

Palm oil prices have fallen by almost 60 per cent from a record high in March after the global economic crisis hit commodity markets.

“We expect appreciating palm oil prices in 2009 due to the prospective reduction in Malaysian and Indonesian palm oil stocks in December/June 2008/09 resulting from a decline in the biological yield cycle, seasonally lower production (and) higher demand for edible palm oil,” it said.

New government rules compelling more vegetable oil to be blended with fossil fuels to reduce pollution is also likely to generate extra demand for palm oil, it said. Indonesia, Malaysia and Colombia are among countries which are compelling more palm oil blending with fossil fuels.

“The current low palm oil prices, relative to other edible oils, will stimulate demand in the near to medium-term,” it said. “The decline in world exports of soy oil will shift demand to palm oil.”

But it warned the global economic crisis made physical palm oil demand difficult to assess. - Reuters

Something2Share:

With the recent sudden drastic drop in CPO price, everyone in the plantation sector in Malaysia and Indonesia has been very panic striken. Cutting cost has been the major issue for reviewing Budget 2009. In view of the high cost of fertilizers, the top management teams have been debating on reducing fertilizer input in 2009. The main concern is how to maintain the cost of production so as there will be still room for making profit. To the employed planters, they are most worried about “hair-cut” on their salaries and bonus since Christmas, 2009 New Year and Chinese New Year are around the corner.

The above news is, indeed, very encouraging and I believe it’s a booster jab for the plantation companies, the plantation owners and the planters. If what is expected (appreciating pal oil prices in 2009) comes true, at least we are able see light in a dark tunnel.