‘Lower palm oil prices likely to stunt profits of plantation firms’
Lower palm oil prices will likely continue to weigh on plantation firms’ earnings in the January-March quarter, said analysts.
However, the drag on profitability could be moderate due to their downstream businesses.
Analysts also said palm oil prices might only recover towards the end of the year.
Palm oil prices lost 18.7 per cent year-on-year in the JanuaryMarch quarter versus a 26.3 per cent decline in the October-December quarter.
Palm oil futures declined by nearly three per cent to RM2,032 per tonne last Thursday amid rising inventory concerns.
India-based Kotak Securities said production in Indonesia was expected to increase in March, which could worsen the already high palm oil inventories.
“No respite is seen for palm oil anytime soon as exports are also not picking up pace as expected by analysts,” it said in a note.
Kotak Securities said the European Union ban on palm oil could further weaken the commodity in months to come.
Capital Economics Ltd forecast last week that palm oil prices would only pick up in the third quarter of this year.
Bloomberg Intelligence agriculture analyst Alvin Tai said IOI Corp Bhd’s third quarter ended March 30 profit would likely keep declining, but at a slower pace, as palm oil prices showed signs of levelling off and its downstream business gained strength.
The palm oil refining and oleochemical businesses should keep improving, he said.
Tai said Kuala Lumpur Kepong Bhd’s profit for the second quarter ended March 30 also likely to have declined on lower palm oil prices and higher production costs, albeit moderately.
“The downstream business should continue to perform better on improved palm oil refining spread and a more competitive oleochemical business due to palm kernel oil’s narrower premium versus Brent oil,” he said.