Palm oil producers see red despite record output

Crude palm oil (CPO) output in Malaysia in the first quarter of this year was at a four-year high, but a sharp drop in price has left net profits for the big producers at record lows.

Malaysia produced 3.9 million metric tonnes of CPO in the first quarter of this year (Q1 2023), the highest for a first quarter output since 2019 when it recorded a production of 4.95 million metric tonnes.

Yet, net profits for the big producers were down 78.9% across the board compared with Q1 2022 when production was just a breath lower at 3.8 million tonnes.

Oil palm is a seasonal crop and production usually peaks in the third quarter of the year and bottoms out in the first quarter. Hence comparisons are made quarter-on-quarter (q-o-q).

The big losers were Boustead Plantations Bhd, FGV Holdings Bhd and Sime Darby Plantation Bhd.

Boustead saw its net profit dive 98.8% q-o-q, from RM435.16 million in Q1 2022 to RM5.22 million in Q1 2023.

In the same period, FGV saw its profit drop 96.7% from RM369.24 million to RM12.09 million, while Sime Darby’s net profit retreated from RM718 million to RM69 million for a 90.4% decline.

The other big losers were Hap Seng Plantations Bhd, which saw its net profit decline 77%, Sarawak Plantation Bhd (down 72.2%), Kuala Lumpur Kepong Bhd (down 65.09%) and IOI Corporation Bhd (down 52%).

The significant decline in net profits has been attributed mostly to a sharp drop in the price of CPO. In Q1 2022, the price topped RM7,074 per tonne but in Q1 2023, its highest was RM4,352.

At the time of writing, the price had retreated further to RM3,279.

Wilmar International Ltd chief sustainability officer Jeremy Goon said that while production may have risen, the most important variable for a plantation company is the market price of CPO.

The price may have reached a low point now, but it is still higher than it was before the onset of the Covid-19 pandemic. Back then, it was an average of RM2,079 a tonne.

A short-lived export ban on shipment by Indonesia to tame soaring prices of domestic cooking oil and disruptions in the export of sunflower oil from the Black Sea last year sent the price of palm oil soaring.

The Black Sea disruptions, caused by the Russia-Ukraine war, boosted the global reliance on palm oil, according to Sathia Varqa, managing editor of Fastmarkets Palm Oil Analytics.

“So we had two major outlier events boosting the CPO price last year. Malaysia also suffered from low production due to the perennial problem of shortage of labour (which drove the price up),” he told FMT Business.

But, as the latest developments show, the tide has turned.

Even so, Sathia said the price would improve marginally because of the impact of the El Nino weather phenomenon although it wouldn’t be as severe as in 2016.

He expects production to reach 18 million to 18.5 million metric tonnes this year compared with 18.45 million metric tonnes in 2022.

Deputy prime minister Fadillah Yusof continues to gripe about an “unfair narrative” by the European Union (EU) to create a negative perception of palm oil.

He said it amounted to a trade barrier and urged palm oil producing nations to take steps to dispel any misconception about the commodity.

He puts the blame on the European Union Deforestation-free Regulation (EUDR), an EU campaign to limit deforestation caused by the consumption of agricultural commodities and products around the world.

Fadillah said the EUDR campaign had led to a 15% drop in exports to the bloc in January from a year earlier.

However, Goon downplayed the issue, pointing out that Malaysia exports mostly to India and China.

Tags: Malaysia, profit, crop, output, CPO, drop, quarter, price, Crude palm oil, Production