Hedging protects New Britain from palm price drop

New Britain Palm Oil revealed it had accelerated forward selling of its palm oil, and at values well above current levels, as it acknowledged setbacks to price hopes from reduced El Nino concerns.

The palm oil producer, whose major shareholder is reportedly auctioning off its 49% stake , said that it was "pleased to have" sold forward some 81,000 tonnes of the vegetable oil for the remainder of 2014, at an average price of $908 a tonne.

That compares on volume with the 45,000 tonnes sold forward at this time last year, while the price is well above current spot values of some $845 a tonne.

Indeed, "while the outlook for palm oil demand remains robust, the record supply of alternative vegetable oils has resulted in current prices trading at their lowest levels so far this year", said Nick Thompson, the chief executive of New Britain Palm Oil, which operates in Papua New Guinea.

World production of both rapeseed and soybeans, both major sources of vegetable oils, is expected to hit a record this year.

El Nino downgrade

As an extra setback to prices, the likelihood has receded of an imminent El Nino weather pattern, which typically causes dryness in much of South East Asia, curtailing palm oil output in countries including Indonesia and Malaysia, the top producers.

"It appears less likely that an El Niño event will have a materially negative impact on global palm oil production, as was previously predicted by climate models," Mr Thompson said.

The Australian Bureau of Meteorology on Tuesday said that while the Pacific Ocean, whose temperature is a key indicator of the weather pattern had been "being primed for an El Niño during much of the first half of 2014, the atmosphere above has largely failed to respond, and hence the ocean and atmosphere have not reinforced each other.

"The chance of an El Niño in 2014 has clearly eased," the bureau said, cutting to 50% the likelihood of the weather pattern setting in this year.

'Supportive for longer term pricing'

Still, New Britain Palm Oil added that world palm oil stocks were "relatively low" and flagged support to the market from moves by Indonesia and Malaysia to raise the level of biodiesel, made from vegetable oils, included in transport fuel.

"Increasing local consumption in Malaysia and Indonesia and a strengthening of the global economy continue to be supportive for longer term pricing," Mr Thompson said.

The comments came as the group unveiled a doubling in underlying pre-tax profits to $78.2m for the first half of 2014, on revenues up 9.5% at $337.9m, boosting by record palm production.

Thanks largely to improved weather than a year before, when heavy rains hampered harvesting, the group collected 1.30m tonnes of palm fruit, an increase of 12.3% year on year, lifting palm oil production by 14.1% to 290,514 tonnes.

"The group's operational performance for the first half was very strong," Mr Thompson said.

'Bid rumours'

The group made no reference to the continued speculation of a sale by Kulim, its top shareholder, of its stake, the Malaysian-based plantations-to-shipping group, which failed last year in an attempt to buy an extra 20% of New Britain Palm Oil.

According to Malaysian press, Kulim has begun an auction of its stake, with Felda Global Ventures, Sime Darby and Wilmar International shortlisted as potential bidders.

The speculation has prompted a sharp jump in New Britain Palm Oil's London-listed shares, which have recovered from the 308p reached in February to stand at 524.9p on Wednesday, up 0.5% on the day.

"Following its recent strong share price performance, New Britain Palm Oil has now moved into hold territory, given our target price of 500p," Edward Hugo at broker VSA Capital said.

"However, bid rumours in the Malaysian media, concerning a potential stake sale at about 600p, provide potential upside on this target in the near-term."

Kuala Lumpur palm oil futures for October stood 3 ringgit lower at 2,262 ringgit a tonne in late deals, amongst their lowest levels in a year.

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