Anglo-Eastern Plantations joined the throng of commentators
talking up the prospect of an end to the rout in palm oil prices – even as one
leading analyst took a more sceptical view.
The plantations group in Indonesia and Malaysia, the top
palm oil producing countries, acknowledged that "challenging times are ahead",
both for the company and the industry, thanks to the weak prices.
Kuala Lumpur futures on Wednesday closed down 1.8% at 1,976
ringgit a tonne in Kuala Lumpur, the weakest close since March 2009.
"Of late the crude palm oil price has weakened," said Lim
Siew Kim, the group's chairman, citing in the main the prospect of a record US
harvest of soybeans - the source of soyoil, palm oil's main rival – although also
citing reduced orders from China and India.
"Demand remains soft as top buyers in India and China
purchase a greater proportion of [soyoil] as the price differential between the
two edible oils continues to narrow."
Orders from Chinese buyers also seems to be being undermined
by a squeeze on commodity financing, Ms Lim said, noting reports that "many
buyers of refined palm oil in China struggled for funding as the country
crackdown on commodity financing in the face of slowing domestic demand.
"This may lead to lower crude palm oil price imports as a
result of tighter access to credit."
Furthermore, ample supplies of sunflower oil are also
weighing on palm oil prices, as is the disappointing demand from biodiesel groups,
which have been encouraged through mandates in the likes of Indonesia and
Malaysia to consume more of the vegetable oil.
"Poor infrastructure for oil distribution and biodiesel
blending in some developing countries" has led to disappointment against "earlier
widely-held expectations for biodiesel to absorb surplus crude palm oil".
Production fall ahead
However, despite this salvo of pressures on palm oil prices,
Ms Kim - citing the potential for production setbacks - flagged hopes that prices
may at least stabilise after their fall, in Kuala Lumpur, of nearly one-third
from their March high.
"The industry believe the crude palm oil price is expected
to be resilient due to concerns on weaker [oil palm fruit] production in
Malaysia and parts of Indonesia in the fourth quarter of 2014 due to a
prolonged dry spell in the first three months of the year," Ms Lim said.
"Parts of some growing areas in Malaysia and Indonesia received
less than 50mm of rain in January and February, the driest period since 1997."
An El Nino weather pattern, linked to dryness in South East
Asia, is also expected by many meteorologists to kick-in this year, and if it "materialises,
could induce droughts which would curb production and yield".
The comments represent the latest in a series from
commentators ranging from Oil World to Morgan Stanley to Sipef forecasting the
palm oil prices, even if they face limited upside, looks unlikely to fall
Liberum, the London broker, has also forecast that "prices
are close to a trough given demand, especially from the biodiesel sector, is
likely to be boosted by the low prices.
"But upside will be limited unless [US] soybean harvest
forecasts are reined back."
However, one leading analyst, Dorab Mistry at Godrej
International, has unveiled a more downbeat assessment, signalling that the
price retreat could have a further 20% to go.
"We know from experience that during bear markets, the price
tends to gravitate toward the cost of production," Mr Mistry said, estimating Malaysian
and Indonesian output costs at 1,500-1,600 ringgit a tonne.
Ms Lim made her forecasts as Anglo-Eastern Plantations
unveiled a near-tripling in underlying pre-tax profits, to $43.2m, for the
first half of 2014, on revenues up 56% at $130.0m.
Results were boosted both by higher production and a high palm
oil selling price in the first half of 2014 than a year before.
Anglo-Eastern Plantations shares, which are listed in London,
stood 0.2% higher at 645.5p in afternoon deals.