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Sipef cites Indonesia palm levy as it cuts profit hopes

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Sipef blamed the dent to Indonesian palm oil producers from a planned export tax as the plantations group cut its forecasts for full-year results, flagging also a "lacklustre" outlook for rubber values

The plantations group, which in February forecast that its results this year would be "lower" than those for 2014, said on Thursday that they would be "significantly lower".

The deterioration in prospects reflected "weak price expectations for the entire year" for many products, "reinforced by a modification of the Indonesian export tax".

Indonesia is proposing a minimum levy of $50 a tonne on palm oil exports, after a drop in prices of the vegetable oil below a $750 threshold left shipments free of tariffs, denting government revenues in the top exporting country for the commodity.

'Hurting the plantations'

The tax will end up "hurting the plantations and smallholders, and only benefiting the downstream industry", Sipef said.

Many commentators have said that the levy, in making exports less competitive, will depress prices for Indonesia's own palm oil processors by boosting domestic inventories of the vegetable oil.

And the tax comes at a time when exports are already "low, as some countries prefer soyoil" at a time when palm oil's discount to its rival vegetable oil is "relatively narrow".

Palm oil stocks "are likely to continue to grow slightly over the coming months", Sipef said, foreseeing prices will remain at depressed levels - unless separate Indonesian plans bear fruit to boost consumption of biodiesel, which is made from vegetable oils.

Hedging strategy

In line with expectations of a flat market – but the chance of a "significant uptick in prices" if Indonesia biofuel output soars - Sipef revealed a sharp slowdown in forward sales of its palm oil production, revealing it had hedged 34% of forecast 2015 output, at an average of $773 a tonne.

A year ago, it had hedged 62% of its expected 2014 production at $993 a tonne.

The group said it has sold 50% of rubber ahead, in line with the proportion a year ago, amid expectations for a "very lacklustre [market] for the remainder of 2015."

A slowdown in in global production "is not enough to offset the still-high [world] stocks", unless emerging market growth picks up, and with it demand for the tyre ingredient.

Tea price rally

Sipef revealed a better outlook for tea prices, which are being lifted by drought in Kenya, the top exporting country, where prices of top grade Best Broken Pekoe Ones supplies have soared 31% to $3.19 a kilogramme so far this year.

"The actual impact of the drought will be felt for months," the group said, noting a drop of 16% in Kenyan tea output in the first two months of the year.

Sipef, which itself grows tea in Indonesia, said that "we expect higher prices during the second [April-to-June] quarter, as tea factories in Kenya are running below 50% of their capacity due to the lack of green leaves.

"In the meantime, our Cibuni tea plantation in Java has been experiencing very good weather since March and we expect good crops in the second quarter."

Nonetheless, Sipef shares fell 1.4% to a two-month low of E50.50 in morning deals in Brussels.


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