This article first appeared in The Edge Financial Daily, on November 24, 2015.
KUALA LUMPUR: Fitch Ratings expects crude palm oil (CPO) prices to remain pressured over the next 12 months at between US$600 (RM2,580) and US$625 per tonne, raising financial risks for Asian producers.
“CPO prices have been depressed due to output remaining healthy in Malaysia and Indonesia. [This is] despite the El Nino weather effect in 2015, stagnant exports, stock accumulation, and the narrow price differential between CPO and other vegetable oils,” said the rating agency in a statement yesterday.
It said the use of palm oil as feedstock in the production of biodiesel had resulted in a high positive correlation between CPO and crude oil prices, and seeing that crude oil prices are low, this will further dampen CPO prices.
“As a result, CPO operators, even the large ones, have chalked up significant increases in funds from operations (FFO)-adjusted net leverage, which exposes these companies to higher financial
risk.
“For the large firms, well-spread-out debt maturity profiles provide some relief, and their FFO fixed-charge cover remains comfortable despite the falling prices,” said Fitch.