MP Evans stood by the “encouraging fundamentals” of palm oil, and flagged plans for plantation expansion, even as it blamed weak prices of the vegetable oil for its first loss since at least the 1990s.
The London-listed group, which holds some 40,000 hectares of oil palm plantations in Indonesia, said that demand growth of what it termed a “basic foodstuff… looks likely to persist”, backed by an expanding world population.
“Palm oil is well placed to benefit from rising global demand for vegetable oil.”
However, “insufficient levels of replanting in Malaysia and a reduction in new Indonesian planting are likely to curb growth in production” in the longer term.
MP Evans said that it “remains confident that the fundamentals of the palm-oil market continue to be encouraging,” adding that the group’s own outlook was “positive”.
‘Not yet enough positive support’
The comments came even as the group unveiled a loss of $518,000 for the January-to-June half, compared with earnings of $5.81m a year before, and representing the first half-year in the red in records available on Reuters going back to 2000.
“The results reflected a period of low crude palm oil prices,” said Peter Hadsley-Chaplin, the MP Evans chairman, with the group reporting a 14.0% drop to $46.25m in revenues for the half year, as weak values more than offset the boost from an increase in the group’s palm oil production.
MP Evans received an average of $453 per tonne for its palm oil in the January-to-June period, a drop of 19.7% year on year – a decline in line with the drop to an average of $528 per tonne in Rotterdam prices.
The group noting “record” inventories of crude palm oil (CPO) as of the end of 2018, said that “rising demand for vegetable oil globally could still be satisfied out of accumulated stocks and so did not create any upward pressure on the price of CPO”.
While Chinese and Indian palm oil imports had risen, and the discount of the vegetable oil to rival soyoil widened, “a reduction in stocks did not yet provide enough positive support to lift the price”.
However, MP Evans also flagged that prices of palm had “steadily strengthened” since July, reaching $570 per tonne in Rotterdam earlier this month, as improved dynamics found traction.
“Overall, the increase in production of palm oil is expected to slow down compared with 2018 and stocks of CPO have fallen during 2019.
Furthermore, the dent to US production prospects for soybeans, the source of soyoil, from a historically slow spring planting season “is likely to have a continuing impact on price expectations during the remainder of 2019”.
’Should be supportive’
In the Kuala Lumpur palm oil market, which was closed on Monday, December futures ended the Friday session at 2,190 ringgit a tonne, up 12.3% since the end of June for a benchmark contract, with MP Evans noting that markets were “anticipating further increases” into 2020.
The Kuala Lumpur March 2020 contract, for instance, settled at 2,289 ringgit a tonne.
There is also some investor expectation that futures palm oil, which is used largely to make biodiesel, will perform strongly when the market reopens on Tuesday, given Monday’s jump in crude prices, and indeed in Chicago values of rival soyoil.
"This weekend’s significant crude oil price increase should be supportive of CPO pricing," said Ed Hugo at broker VSA Capital.
"The swing factor in the market is biodiesel and any increase in the gasoil premium over palm oil increases discretionary biodiesel demand."
MP Evans - which added that it had completed the $25.4m buyout of shares held by minority partner Austindo Nusantara Jaya, “effectively acquiring an additional 2,200 hectares – also revealed plans for further expansion.
The group said it was “exploring the acquisition of additional hectarage close to its existing projects to bring them to an optimal size”, which it considers as 10,000 hectares plantation plus a 60-tonne mill.
An operating of this size “is both big enough to provide economies of scale in production and administration, and small enough to allow the careful scrutiny by field management needed to maintain high standards.
“The board is seeking eventually to extend the Kalimantan project from the current 15,000 hectares to the equivalent of two 10,000-hectare units.”
MP Evans shares stood 4.6% down at 642p in morning deals in London.