Palm oil futures may be past their peak for 2020, according to an outlook from FGV Holdings as it flagged the potential for a retreat in the restocking drive by importers which fuelled a 40% rebound in values.
The Malaysia-based group, which is the world’s largest crude palm oil producer, said that in the July-to-December half overall, “demand for CPO [crude palm oil] is poised to recover as global markets open up from strict lockdowns in the first half of 2020”.
However, the benefit of the recovery from Covid-19 effects had already largely been seen, in terms of the rebound in orders from importers seen as a key driver in the recovery in benchmark Kuala Lumpur palm oil futures prices from a low of 1,939 ringgit a tonne in early May to as high as 2,808 ringgit a tonne in early August.
‘Demand will soften’
“A lot of restocking of stocks has been happening and that was the main push for the good CPO prices,” Hariz Fadzilah Hassan, the FGV chief executive, said, highlighting demand from India and China, the top two importers of the vegetable oil.
“But we expect demand will soften a little bit in the fourth quarter, bringing the total pricing within more moderate numbers than what you are seeing currently.”
The group forecast futures averaging 2,400-2,600 ringgit per tonne in the second half of 2020.
Kuala Lumpur’s benchmark November contract closed on Monday at 2,662 ringgit per tonne, with the spot September lot settling at 2,770 ringgit per tonne.
He added to that the group was “mindful that the nascent signs of recovery may not be sustainable due to the volatility in global markets and economies”.
Back in the black
The comments followed FGV’s release of results showing earnings of 12.05m ringgit for the April-to-June quarter, returning to the black after a 66.41-ringgit loss a year before.
The improvement in earnings was attributed to improvements in the core plantations division, with a retreat in logistics business curtailing revenue growth to just 0.5%, to 3.29bn ringgit.
The group said its plantations division turned to a profit before zakat and tax of 47m ringgit, from a loss of 54m a year before, “on the back of improved crude palm oil margins as a result of higher crude palm oil prices”.
Prices averaged 2,309 ringgit a tonne for the quarter, up 15.7% year on year.
Production had also improved, to 1.19m tonnes of fresh palm fruit bunches, despite the loss of 79,000 tonnes in the quarter to lockdowns forced by Covid-19.
In sugar, FGV reporting a halving to 26m ringgit in losses before zakat and tax, “a result of [a] better industry average selling price and improved production costs”.
And the group reported progress too in plans to diversify into other sectors, to reduce its exposure to volatility in palm oil and sugar prices.
“Our dairy business has show encouraging growth,” Mr Hariz Fadzilah said, with the animal feed business seen generating revenues of 20m ringgit by the end of the year.
FGV Holdings shares closed unchanged at 1.19 ringgit in Kuala Lumpur on Monday.