KUALA LUMPUR (Feb 28): Sime Darby Plantation Bhd (SDP) says the outbreak of the COVID-19 virus has resulted in demand for palm oil drying up from China, where the outbreak first originated, adding downward pressure to the prices of the commodity.

According to SDP group managing director Mohamad Helmy Othman Basha, although the group does not sell much palm oil to China, a lack of demand there has impacted prices of the commodity, which has fallen from about RM2,700 per tonne in January.

The three-month benchmark palm oil futures contract for May delivery settled RM113 lower at RM2,307 a tonne today.

“Our market is mainly within this region or to India. We did have one shipment to China in January, and we did not face problems with that. But since then, we noticed there was hardly any demand coming from China... It has dried up,” he told a media briefing here earlier following the release of the group's financial year 2019 results.

Mohamad Helmy said SDP sold less than 100,000 tonnes of crude palm oil (CPO) to China last year, out of a total of 2.5 million tonnes the group produced, indicating the direct impact of the Chinese market on its business remains small.

Meanwhile, given the weak environment, he said Indonesia’s new B30 biodiesel mandate, which stipulates that its biodiesel will have 30% palm-based biofuel, will help cushion the drag by softer China demand on CPO prices.

As for the ban on palm oil imports from Malaysia by India, a key market for SDP, Mohamad Helmy said it has resulted in Indian traders buying more Indonesian CPO, even at a premium to Malaysian prices.

“As India buys from Indonesia, the existing customers of Indonesia will have less oil. So these customers will look for alternative places, such as Malaysia.

"It's a good thing for us because we operate in both countries. So, even if we can’t sell from Malaysia, we can still ship it from Indonesia. So for us there’s little impact,” he added.

Given volatile external developments on top of changing weather patterns, Mohamad Helmy said it is hard to forecast CPO prices and the group's fresh fruit bunch (FFB) production.

SDP’s FFB fell 6% year-on-year for the financial year end Dec 31, 2019, when the group recorded an average CPO price of RM2,063.

Referring to the CPO three-month futures for March 2020, which rose above RM3,000 back in January, Mohamad Helmy said he felt nervous because a fast increase in price meant it was likely not sustainable. The March futures contract closed RM147 lower at RM2,350 a tonne at the time of writing.

“To me RM3,000 a tonne was not a healthy price. Yes, it’s good and everyone can enjoy higher prices, but it’s not good for consumers because then they will be paying a lot more for the products. Personally, I’m more comfortable if prices remain at the RM2,500 a tonne level. I’m hoping that the price will remain within this range,” he said.

SDP shares ended four sen or 0.8% lower at RM4.96 today, giving it a market capitalisation of RM34.15 billion.