Sipef hopeful on palm price - but not rubber, tea

The retreat in palm oil prices may have run its course, Sipef said, as futures extended their recovery, but the plantations group was less upbeat over  rubber and tea markets.

The plantations group acknowledged that palm oil output in Indonesia and Malaysia, the top two producing countries, had returned to "a growth trend", after the "rather weak volumes" last year.

Rains had eased problems raised by "exceptionally dry" conditions in the first two months of 2014, the Sipef chairman, Baron Bracht, told investors, adding that he was "optimistic" about the production outlook for the second half of 2014.

Sipef itself, which produces palm oil in Papua New Guinea, said that its output of the vegetable oil had grown by 9.0% in the first five months of the year, aching 107,349 tonnes.

Indeed, he acknowledged the role of talk of rising South East Asian output, and of "relatively low" demand from the major importing countries of China and India, in depressed prices, which on Thursday hit 2,362 ringgit a tonne on the Kuala Lumpur futures exchange, the lowest in nearly eight months.

Already priced in?

However, Baron Bracht signalled hopes that prices have hit their low, having priced in bearish news, including the prospect of record US production of soybeans, the source of soyoil, palm oil's main rival.

"We are expecting that most of the negative inputs that are impacting the market… are already reflected in current price levels," he said.

Indeed, "since crude oil prices have remained stable and palm oil's discount in comparison to soyoil has been growing, demand from the biodiesel sector has been supportive," with consumption from biofuels plants a major source of demand for vegetable oils.

"Rising biodiesel mandates in a number of countries such as Indonesia and Brazil should prevent a further drop in prices."

Kuala Lumpur palm oil futures stood up 1.1% at 2.427 ringgit a tonne in late deals.

'Weighing on the market'

However, Baron Bracht took a more downbeat stance on prices of rubber, which on Tokyo's futures exchange touched 190.30 yen a kilogramme, down 30% so far this year, on a benchmark contract basis, and the lowest since September 2009.

Sipef's own output rise of 7.2% in the first five months of 2014 was contributing to a world oversupply behind rubber price declines.

"Due to the rapid rise in production from new plantations created from 2007 to 2009, which have now reached maturity, coupled with the relatively weak demand side and the exodus of financial investors, large inventories of natural rubber are now weighing on the market," he said.

"We are not expecting a major improvement in prices during the next few months."

Tea price pressure

In tea too, which Sipef grows in Indonesia, he was downbeat on prices, flagging the pressure on prices from a decent harvest in Kenya, the top black tea exporter.

"The large supplies coming from Kenya are continuing to have a negative impact on the prices received for tea that we produce and we are not expecting the Kenyan market to pick up again until September, after the wintering period."

Tea prices at benchmark auctions in Nairobi remained at $2.63 per kilogramme this week for top grade best broken pekoe ones, down by 32% so far this year.

'Hovering around cost of production'

The weakness of the Kenyan tea market was highlighted last week by London-listed plantations group Camellia, which said that the country's prices were "still only hovering around cost of production".

On Monday, Kenyan tea group Williamson Tea reported a 10% drop to 1.04bn Kenya shillings ($11.9m) in pre-tax profits for the year to March, with rival Kapchorua Tea reporting a drop of 28% to 182m shillings.

"The new financial year has started with weak markets and low tea prices while costs for inputs and labour continue to rise," Williamson Tea added.

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