El Nino may cause CPO prices to hit, even exceed RM4,000 per tonne in 2H2023 — Sime Darby Plantation MD

Crude palm oil (CPO) prices may rise to, or even surpass RM4,000 per tonne in the second half of 2023 (2H2023) due to the El Nino phenomenon, compared to the current level of RM3,000 per tonne, according to Sime Darby Plantation Bhd managing director Datuk Mohamad Helmy Othman Basha.

“CPO prices may hold steady around current levels and could go up to RM4,000 and above. That is our forecast. With that price, we are expecting better earnings for us,” he told reporters at a virtual media briefing in conjunction with the announcement of the plantation group’s results for the second quarter ended June 30, 2023 (2QFY2023).

El Nino is a naturally occurring climate pattern associated with the warming of ocean surface temperatures in the central and eastern tropical Pacific Ocean.

At the time of writing on Wednesday (Aug 23), CPO price stood at RM3,841 per tonne, slightly lower than the previous day’s RM3,857 per tonne. CPO price last closed at RM4,000 per tonne on July 25.

This compares to last year, when CPO price jumped to a record high of more than RM7,000 per tonne, amid shortages of sunflower oil caused by the Russia-Ukraine crisis.

According to Bloomberg data, CPO peaked at RM7,757 per tonne on April 27, 2022.

On the potential impact of the El Nino phenomenon on the group’s oil palm crop production, Mohamad Helmy acknowledged that there might be an adverse effect on crop production in Indonesia, particularly in certain regions of Kalimantan.

“For Malaysia, we see a muted impact. As you know, Malaysia constitutes about 50% of our planted area,” he said.

Sime Darby Plantation posted a RM380 million net profit for 2QFY2023, down 53% from RM812 million recorded in 2QFY2022. Revenue fell 23% to RM4.31 billion from RM5.59 billion.

The group said profit for the quarter was impacted by lower average realised CPO and palm kernel prices, higher cost to customer, particularly fertiliser cost, as well as lower margins and demand from the downstream segment.

Despite lower earnings, it declared a dividend of 3.25 sen per share.

For the cumulative six months (6MFY2023), the group’s net profit dropped 71% to RM449 million from RM1.53 billion a year ago. 6MFY2023 revenue was down by 16% to RM8.37 billion, from RM9.97 billion a year ago.

Shares of Sime Darby Plantation closed down seven sen or 1.79% to RM4.32 on Wednesday, giving it a market capitalisation of RM29.88 billion.