KUALA LUMPUR: Boustead Plantations Bhd, the plantation arm of Boustead Holdings Bhd, sees crude palm oil (CPO) prices averaging between RM2,300 and RM2,600 per tonne this year, supported by a decline in inventory and a weaker ringgit which helps fuel greater export demand.

Its chairman Tan Sri Lodin Wok Kamaruddin said although prices are currently hovering near RM2,200 per tonne, Boustead Plantations (fundamental: 1.4; valuation: 1.8) expects palm oil business to be good compared with its average production cost.

“Against the average cost of production of RM1,700 per tonne, it is still good business,” he told reporters after the group’s annual general meeting yesterday.

“Moving forward, our in-house review shows CPO prices will likely hover between RM2,300 and RM2,600 per tonne this year,” he said.

Still, Lodin conceded this year is likely to be challenging for the group as well as the plantation sector.

Lodin said CPO prices are likely to firm up in the first half of this year, but they are likely to decline in the second half due to the seasonal increase in stocks. Abundant supply of soybean oil, weak demand of CPO from China and India, the weak ringgit and low crude oil prices are also expected to affect CPO prices.

“The premium on soybean oil over palm oil has very much reduced to about hardly US$40 against US$80 to US$90 at one point,” he said.

“Demand for palm oil as feedstock has also decreased,” he added.

As a result, he said the decrease in palm oil inventory to 1.74 million tonnes currently from 2.17 million tonnes in late 2014 was  not able to boost CPO prices.

“Normally, at that sort of inventory level, CPO price could easily go up to RM2,500 to RM2,600 per tonne,” he said. “Also, as palm oil is priced in ringgit, the weak local currency should spur demand but it’s not happening in a big way. We hope this will change in the next several months.” 

Lodin said export duties, which kicked in at 4.5% this month after almost a half-year suspension to curb declining CPO prices last year, will have minimal impact on Boustead Plantations’ bottom line.

He said the group’s aim is to reduce operational costs by improving efficiency in its plantations and harvesting methods, including increased mechanisation in harvesting of fresh fruit bunch.

He said the company has improved operations in its Sungai Jernih mill in Melaka with better quality seedlings and rigorous planting, fertilising, as well as harvesting methods. This will be replicated in its estates and 10 other mills.

On expansion, Lodin said the group aims to increase its landbank to 100,000ha by 2017 from 83,000ha currently, and subsequently by 10% to 15% annually.

This article first appeared in The Edge Financial Daily, on April 2, 2015.