Planters confident palm oil price will stay above RM3,000 per tonne this year

PETALING JAYA: The profit margins of local plantation companies will likely remain intact for the full calendar year 2011 despite anticipation that the price of crude palm oil (CPO) is set to trend below RM3,000 per tonne in the second half due to poor fundamentals.

Industry players contacted by StarBiz yesterday were mostly optimistic that the average CPO price this year would stay slightly above RM3,000 per tonne.

The forecast average CPO price for this year would be higher than last year's average at RM2,710 and RM2,300 per tonne in 2009, said United Malacca Bhd chief executive officer Dr Leong Tat Thim.

Currently, the cost of production (COP) among well managed oil palm plantation companies in Peninsular Malaysia would be about RM1,300 to RM1,400 per tonne of CPO.

Based on the COP, Leong said planters would still be enjoying good margins if the CPO price was trading between RM2,800 and RM3,000 per tonne for the rest of this year.

“I foresee the CPO price climbing back to RM3,500 per tonne before the end of this year,” he added.

In 2008, the palm oil inventory breached two million tonnes and this resulted in the price of CPO to erode to between RM1,500 and RM1,800 per tonne.

“However the situation is different now. Everything has been factored into (rising production and inventory) the CPO prices.

“Even though inventory has touched the two million-tonne mark, the CPO price is still holding steady at above RM3,000 per tonne,” said Leong, who attributed the strong price support to continued demand from traditional markets like Pakistan, China, India, the United States and the European Union.

Furthermore, the CPO price discount to soybean oil at US$210 per tonne currently had widened significantly from the traditional discount at US$157 per tonne .

“The widening of the CPO price discount to soybean oil will make palm oil a more attractive alternative vegetable oil to purchase among traditional buyers,” he added.

United Plantations executive director (communications) Datuk Carl Bek-Nielsen concurred that the margins among local plantation companies would still be there but cautioned that production costs were escalating in the sector.

“With these cost escalations, we will probably see many palm oil producers producing at a cost of about RM1,400 to RM1,600 per tonne in certain estates with poorer yields,” he said. In fact, the COP could even touch RM1,800 per tonne, added Bek-Nielsen.

Sarawak Oil Palms Bhd CEO Paul Wong also expects good margins for Sarawak-based planters with matured oil palm trees.

“The current CPO price hovering slightly above RM3,000 per tonne is good. However, should the price (fall) to RM2,000 per tonne and below, those with younger palm trees planted in peat soil area will suffer,” he reckoned.

It will be difficult for Sarawak planters to service the windfall profit tax, the cess imposed by the Malaysian Palm Oil Board as well as the high cost of fertilisers, chemicals and fuels.

The COP among Sarawak oil palm plantation companies is pegged at RM1,800 to RM2,000 per tonne.

Meanwhile, CPO future contracts traded on Bursa Derivatives Malaysia yesterday ended generally higher after a dismal performance on Tuesday on news of rising CPO production and stocks.

The three-month benchmark CPO futures for September contract rose RM48 to settle at RM3,082 per tonne yesterday.