Sipef Group cautioned over a "pretty negative" outlook for palm oil prices, even as data showing a surprise rise in Malaysian inventories halted a revival in values from near-four-year lows.
The plantations company, cautioning that its 2013 profits will be "considerably lower" than last year's, highlighted some reasons for support to palm oil prices, including a "massive" discount to gasoil, increasing the competitiveness of biodiesel made from the vegetable oil.
"This price spread has triggered free biofuel demand beyond mandates," Sipef said.
Furthermore, growth in output in Indonesia, the top producer, appeared muted heading towards the period of peak volumes as trees recover from a strong 2012.
"It is questionable to what extent palm oil production will grow beyond its cyclical path in the second half of 2013, with low yields in the first half and the dry spell that particularly hit Indonesia," said the group, which acknowledged its own output in Indonesia had been "disappointing".
"It is not expected that annual production in 2013 will significant overtake last year."
However, these factors were being offset by "good growing conditions" in the US, provoking expectations of a "bumper crop" of soybeans, the source of soyoil, palm oil's major rival in vegetable oil markets.
"The outlook for palm oil prices in the second half of 2013 is pretty negative," Sipef said, highlighting forecasts that prices, among their lowest since 2009 in Kuala Lumpur, looked likely to stay near current levels.
The comments came as the Malaysian Palm Oil Board revealed that stocks in Malaysia, the second ranked palm producer and exporter, hit 1.66m tonnes last month, a rise of 1.0% on June.
While still well below the 2.00m tonnes in July 2012, the increase surprised investors, who had expected a 3.0% month-on-month decline in inventories.
The rise, the first of 2013, reflected unexpectedly strong production and a smaller-than-expected rise in exports last month, and prevented palm oil futures recording a third successive day of gains in Kuala Lumpur.
However, data on Tuesday from cargo surveyors showing a strong start to August for Malaysian exports – seen rising 26% month on month by Societe Generale de Surveillance and 22% by Intertek Testing Services – limited the decline.
Kuala Lumpur palm oil, which hit 2,137 ringgit a tonne last month, its lowest since October 2009, closed at 2,290 ringgit a tonne for the benchmark October 2013 contract, down 0.3% on the day.
Sipef's comments came as it unveiled a 38% tumble to $21.8m in earnings for the first half of 2013, on revenues down 13.0% at $151.9m.
Besides weaker palm oil prices, and volumes, the group suffered from a drop in rubber values and output too, sending group profits from the tyre ingredient down 41%.
Production of tea at the group's Cibuni plantation in Java suffered thanks to "many days of rainfall and a lack of sunshine - a trend which has continued for a few years now, and whereby leaf growth, each year, is considerably stunted".
Sipef shares eased 0.8% to E50.90 in lunchtime deals in Brussels.