Palm Prices Could Climb on Tight Supply, Output Rebound Looms: Golden Agri

30.08.2016

Crude palm oil prices could jump later this year on firm demand and tight supplies, although output is set to gradually rise as the impact of an El Nino weather event fades, a senior official from Golden Agri-Resources said.

Dryness linked to last year's El Nino, the strongest in 20 years, has lowered yields in top growers Indonesia and Malaysia, and is forecast to cut output at Golden Agri, the world's second-largest palm oil planter, by 15 percent to 20 percent this year.

However, better weather in 2016 indicates yields will be higher next year, Golden Agri's chief financial officer, Rafael B. Concepcion Jr., told Reuters on Monday (29/08).

The Singapore-listed firm's crude palm oil (CPO) production is expected to bounce back to 2015 levels of about 2.4 million metric tons in 2017 and climb about 10 percent in 2018, he said.

"We are seeing a big improvement in weather from last year ... this year rainfall has more or less normalized," Concepcion said by telephone from Jakarta.

"We expect the health of trees to be back to normal."

Global inventories in 2016 will, however, bear the brunt of the El Nino, Concepcion added, which, together with demand due to higher biodiesel mandates, could underpin CPO prices.

"It is not just Malaysia and Indonesia, the points of origin, but also in markets that heavily consume palm oil, so India, China and parts of Europe, they are all tight in terms of inventory position," Concepcion said.

According to the US Department of Agriculture, global palm oil production is estimated to drop to 59.40 million metric tons in 2015/16 from 61.64 million metric tons a year ago.

Crude palm oil prices are expected to remain at the current range of about $600-$700 a metric ton for the rest of 2016, although $750 is also possible, Concepcion said, as buyers restock and Indonesia mops up more palm oil for blending into biodiesel.

Benchmark futures hit a 10-week high at 2,668 ringgit ($661.2) a metric ton earlier this month.

Biodiesel targets

Indonesia is pushing greater biodiesel usage to reduce its oil import bill, cut greenhouse gas emissions and create more demand for the tropical oil. It requires a minimum 20 percent of bio content in diesel fuel in 2016, versus 15 percent last year.

Golden Agri has already built a biodiesel plant with an annual capacity of 300,000 metric tons  in South Kalimantan on the Borneo island. It will finish building another unit with similar volumes next year in Jakarta, the CFO said.

The company is also looking to boost it palm oil output by re-planting and using higher-yielding seeds.

With re-planting, it expects its current estates to produce 20-30 percent more oil. The company, which says it has not done any new planting on its estates since November 2014, targets to re-plant on 10,000 hectares every year, he said.

Golden Agri had a total planted area of 483,100 hectares, including smallholders, at the end of June.

"We are using not only new types of seeds but introducing different forms of mechanization that will improve efficiency."


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