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Sipef cautious over hopes for palm oil price rally

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Sipef put a dampener on hopes for a rebound in palm oil prices, revealing it had accelerated forward sales, amid expectations that high inventories will "remain a burden" to values.

The Belgian-based plantations group said that it had sold forward 53% of its expected palm oil output for 2013, ahead of levels of 45% at the same time in both 2012 and 2011.

Sipef, highlighting an "uncertain price outlook" for palm oil, said that "the high stocks, in origin as well as the main importing countries, will remain a burden to the market".

Official monthly reports in Malaysia, the second-ranked producing country, have shown inventories hitting record levels, "and for that matter also in Indonesia", although Sipef acknowledged the dearth of official data on the top producing nation.

Palm vs soy

The palm oil market "will not rally on its own", despite a seasonal decline in output in Indonesia and Malaysia, which is set to erode inventories.

Rather, the market "focus" will be on the degree to which palm oil's historically high discount to soyoil, the rival vegetable oil, encourages buyers to switch.

Furthermore, the dry weather in Argentina - where dry weather has prompted a succession of crop downgrades, including a cut by Lanworth on Wednesday of 2.0m tonnes to 49.6m tonnes in its estimate – and lingering drought in parts of the US Midwest could boost soy prices, and with them palm oil values.

"If anything goes wrong with one of these crops, palm will definitely borrow some of its strength," Sipef said.

Rubber price outlook

The acceleration in forward palm oil sales contrasted with a slowdown in advanced coverage in rubber, for which Sipef has sold 20% of its expected output, compared with 25% a year ago, and 39% at this stage of 2011.

While rubber demand in the West is "fairly patchy… economies in the East, particularly China and India, are having strong performances, and rubber demand seems to be rather robust.

"We therefore see little downside to current market prices," the group said, if adding that the "fundamentally, the market is not strong enough to expect a significant price rally".

With prices of tea, which Sipef grows in Sri Lanka, "expected to remain firm" in the current quarter at least, the group said it was "on track for a satisfactory result in 2013", thanks to the advanced level of palm oil sales and hopes for "good crops for the entire group".

Profits fall

The comments came as the group unveiled a 28% drop to $73.5m in earnings for 2012, or of 28% to $64.6m once the impact of plantation revaluations is stripped out.

Revenues fell 9.6% to $332.5m, as weaker palm oil and rubber prices offset the impact of higher volumes of all Sipef's major crops, which also include bananas, grown in Ivory Coast.

Costs rose too, notably in Papua New Guinea, where a 12.1% jump in the value of the kina "reinforced the impact" of higher salaries, and the extra maintenance required following "freakish weather" at the start of 2012, when its plantations received particularly heavy rains.


The group's Papua New Guinea plantations suffered a particularly wet January too, receiving nearly one-quarter of annual rainfall over the month, and leaving palm oil output 18% below expectations.

"But we do expect a recovery in the next months," Sipef said, in comments which echo those of peer New Britain Palm Oil, which earlier this month highlighted fresh Papua New Guinea inundations.

Sipef shares closed 3.0% down at E60.75 in Brussels.


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