Olam International revealed it was "generally bearish" on
the palm oil market, citing the prospect of production rebounds, as the cocoa-to-diary
trader revealed a rise in earnings, helped by "opportunistic" business in
Sunny Verghese, the Olam founder and chief executive,
acknowledged that the revival in South East Asian palm oil output, from 2016
levels depressed by dryness, had been "slightly lower than what I anticipated".
Last week, official data showed Malaysian palm oil
production reaching 1.59m tonnes in April - 19.0% higher year on year, but some
45,000 tonnes below market expectations.
However, Mr Verghese forecast nonetheless an increase of some
2.7m tonnes in output in Malaysia, the second ranked producing country, an
estimate he said was "probably at the top end of the range of consensus
"We expect a fairly strong pick-up from second quarter
onwards," he told investors, foreseeing Malaysia's total output this year at
about 20m tonnes.
For Indonesia, the top palm-producing country, Olam was
forecasting a rise of some 3.6m-3.7m tonnes in production, to about 34.8m
tonnes, a figure it said it actually at the lower end of market expectations.
With the extra supplies, "we are generally bearish on the
palm oil market as a result of the fundamental recovery in crude palm oil
production, both in Malaysia and in Indonesia," he said.
Mr Verghese, asked about his forecast for palm oil prices this
year, said that "our range is somewhere between 2,200 to 2,700 ringgit a tonne",
as measured in the Kuala Lumpur futures market, where the benchmark July contract closed on Monday up 1.2% at 2,684 ringgit a tonne.
Besides production prospects, he said that forecast also
factoring in potential for currency moves, export levy rates and increased use
of the vegetable oil in Indonesia for making biodiesel – as well as "US
Washington officials earlier this month said that Indonesia,
and Argentina, were exporting biodiesel to the US at prices artificially
depressed by subsidies – a finding deemed likely to herald large US import
subsidies on imports of the biofuel from the two countries.
Cashing in on cashews
Mr Verghese's comments came as Singapore-based Olam, one of Asia's
biggest agricultural commodity traders, unveiled earnings up 27% at Sing$143.9m
for the January-to-March period, on revenues up 22% at Sing$5.80bn.
Profits growth was particularly strong in the group's edible
nuts and spices division, in which earnings before interest, tax, depreciation
and amortisation (ebitda) soared 72 to Sing$138.0m.
"Almonds did better as volumes grew and prices improved well
over the prior first quarter, and remained steady," the group said.
"The cashew business enjoyed favourable market conditions,
which supported its volume and margin growth during the quarter."
'Opportunistic grain trading
The food staples division achieved a 28% rise to Sing$118.3m
in ebitda, an increase of which the group's grains division "was a key driver.
"Both origination and trading as well as its wheat milling
operations in West Africa continued to deliver growth."
Indeed, Olam said that "opportunistic trading volumes in grains"
had been behind a 51% surge year on year in the group's overall trading
Coffee vs cocoa
In the group's confectionery and beverages division, coffee
showed growth in trading volumes and ebitda too, with a "better contribution
from both green coffee supply chain and trading as well as the soluble coffee
However, the division reported a 29% drop to Sing$75.0m in
ebitda, thanks to a worse performance in cocoa, blamed on volatility in prices,
which have over the past year lost roughly one-third of their value on New York's
futures market, undermined by increased supply hopes.
"Cocoa supply chain and trading, on the other hand, faced
significant headwinds and margin pressures due to sharp market movements in
late 2016 and early 2017," Olam said.
'Tough year for cocoa'
Shekhar Anantharaman, the Olam chief operating officer, underlined
that the cocoa decline was related to the trading operations, rather than the
processing business bought two years ago from Archer Daniels Midland for $1.2bn
– although with the purchase price now the subject of a dispute between the two
"The processing assets that we acquired from ADM, the business
has done quite well last year. And in the first quarter also, the business has
been quite stable," Mr Anantharaman said.
However, the drop in cocoa price tumbled "has cost,
obviously, liquidity in the marketplace.
"That has impacted the supply chain and trading part of the
business," he said, adding that "it will be a tough year for cocoa".