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FGV cuts palm replanting target, despite foreseeing 'pick up' in prices


FGV Holdings, in the latest of a series of shake-ups, cut its target area for palm oil plantation renewal despite expecting prices of the vegetable oil “to pick up” later this year, backed by demand factors.


The Malaysia-based group, the world’s largest crude palm oil producer, said that it had in light of “unfavourable” prices of the vegetable oil, cut its palm replanting target for this year to 11,000 hectares, from 15,000 hectares.


The retreat reflected the latest in a series by the group which, in the face of sustained losses, has also undertaken measures from job cuts to palm mill rationalisation to seeking a partner for its sugar operations, which the group said on Wednesday had put a “poor showing” in the April-to-June quarter.


However, it came despite expectations of some recovery in palm oil prices, for which it realised only 1,955 ringgit per tonne in the latest quarter on its sales, a drop of 1.6% from that in the January-to-March period, and of 19.1% year on year.


‘Higher demand’

“We expect CPO [crude palm oil] prices to pick up towards the end of the year and next year’s average selling price should be higher than this year’s,” said Haris Fadzilah Hassan, the FGV chief executive.


He cited “several reasons” for this outlook, “including the escalating US-China trade war”, which in helping curtail the Chinese soybean crush has raised demand for imported vegetable oils.


Mr Haris also cited “higher demand” for palm oil for biodiesel plants, “with the new B30 and B10 mandates in Indonesia and Malaysia respectively”, with “the upcoming festive seasons” to support consumer demand for the vegetable oil.


However, he also noted that “the anticipated imposition of import taxes by India”, a key vegetable oil purchaser, “may impact prices in the future”.


The group noted separately “high stockpiles” of palm oil and “competitive pricing from Indonesia” as factors which could mean that prices “remain volatile in the coming quarters”.


‘Poor showing‘

The comments came as FGV unveiled a fifth successive quarterly loss, this time of 52.20m ringgit, compared with a loss of 23.43m a year before.


“Overall performance was affected by a number of factors, chief among which are softer CPO prices and the poor showing in the sugar business,” Mr Haris said.


“This is the main reason why we are reviewing FGV’s sugar business, because we believe the current structure is suboptimal and does not consider policy shifts or industry trends.”


The sugar division expanded its operating loss for the quarter to 53.17m ringgit, from 2.87m ringgit a year before, “due to lower sales volume and selling price”, the group said.


It added that the division “will continue to be affected by lower average selling price of refined sugar as a result of excessive supply in the domestic market”.


‘Transformation plan’

While the plantation division slipped into a loss too, of 54.10m ringgit, this was down to the “steep” drop in palm oil prices, with operational improvements allowing higher volumes which had helped keep group revenues flat at 3.28bn ringgit.


FGV said that “the early impacts of the group’s transformation plan… [have] resulted in a 15% increase in fresh fruit bunch [FFB} production to 1.15m tonnes and a 19% improvement in FFB yield to 4.76 tonnes per hectare compared to the previous year”.


FGV shares closed down 3.6% at 0.95 ringgit in Kuala Lumpur, their weakest finish in seven months.

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