MP Evans, the London-listed producer of crude palm oil with plantations in five Indonesian provinces, has reported significant increases in profit and revenues from trading in full year 2020. Despite Covid-19 and its restrictions, palm oil prices rose over 2020 and are still increasing.
Crude palm oil (CPO) prices climbed over the second half of the 2020 financial year, ending it at $1,035 per tonne cif Rotterdam – the highest since July 2012, said the company.
Crude palm oil prices had started 2020 promisingly but fell as the Covid-19 pandemic saw world consumption fall from the second quarter. At the same time, world production of palm oil fell due to labour shortages, dry weather, and the rising age of plantations. Initially, palm oil stocks helped meet demand, but these had started to fall in line with the production deficit.
As a result, CPO prices recovered strongly from the middle of May 2020 and continued to rise for the rest of the year. The average cif Rotterdam price for the year was S$716 per tonne, up by $150/tonne from the 2019 average. But MP Evans did not benefit fully from rising prices as the Indonesian government increased export levies from December 2020 to protect its biodiesel manufacturers.
This strong CPO price level has persisted into 2021 – it averaged over £1,000 per tonne in January and February and was above $1,100 from the start of the latter month. While the company notes that part of the rise was due to the higher export levies introduced in Indonesia, it adds that December 2020 saw an acceleration of export business from Indonesia with trades brought forward from January to avoid the export tax from early 2021.
Stocks fell in 2020
The company notes stocks of palm oil were at low levels at the end of 2020, with a recovery in palm oil production expected in 2021. However, the extent of the recovery could be constrained by a continued labour shortage, with migrant workers affected by travel restrictions imposed as a Covid-19 control measure. Demand for the product will also be affected by the speed of recovery from lockdown measures by the hospitality sector, particularly in India which is a significant consumer of palm oil.
MP Evans’ palm oil crop production over the first two months of 2021 is ahead of 2020 in four of the five Indonesian regions. At the end of February, 217,000 tonnes of total crop had been processed, 20% up on the 180,000 tonnes a year earlier.
In the longer term, insufficient levels of replanting in Malaysia and a reduction in new Indonesian planting are likely to curb growth in production, warns the company.
The MP Evans Group made an operating profit of $31.32 million on revenues of $174.51m in the year ended December 31st 2020, compared to $16.12m and $119.34m in the previous year.
“Notwithstanding the uncertainties surrounding Covid-19, the board is of the view that palm oil, because of its high yield and low cost of production, is well placed to benefit from increasing demand for vegetable oil and hence that the outlook remains encouraging,” states executive chairman of MP Evans Peter Hadsley-Chaplin.
“I am pleased to report that 2020 was another record year for production and revenue resulting in a sharp rise in profit, which nearly trebled to US$22.2 million, and an increase in sustainability premia. In view of the strong increase in crop and production projected for the immediate future and the prospects for the palm-oil market, the board intends to recommend a dividend of 30p per share in respect of the 2021 financial year."
Sustainability is becoming more important commercially – MP Evans is running a pilot project in its Bangka estates “to establish how best to generate enthusiasm amongst independent smallholders to register under the Roundtable for Sustainable Palm Oil (RSPO)’s Independent Smallholder Standard and then achieve certification.
At the end of 2020, 208 smallholders with more than 1,200 hectares of land had committed to the RSPO scheme. The Group has started to deliver agronomy training to these growers, supplemented by in-field visits and advice from mid-2021.