KUCHING: The suspension of upstream operations for major Sabah estates on March 25 and mill operations on March 27 for almost three weeks are expected to impede palm oil production further, as Sabah constitutes 25 per cent of Malaysian palm oil production.
Nevertheless, this is only expected to affect selected planters, said AllianceDBS Research Sdn Bhd (AllianceDBS Research) in a note yesterday.
“The government has since given the green light for the affected estates to operate on the condition that these estates do not have any positive cases of Covid-19, no persons under investigation (PUI) for Covid-19, estate workers have no close contact with any positive Covid-19 cases or PUI Covid-19 cases and are required to follow the rules and guidelines set out by the Ministry of Health of Sabah,” it added.
The researchers understood that more than 50 per cent of Sabah’s Covid-19 cases were contracted by estate workers.
“Currently, the most exposed companies to the closure of the Sabah estates are IOI Corporation Bhd and Genting Plantations Bhd.” it shortlisted. “IOI has 61 per cent of its estates in Sabah while Genting Plantation has 30 per cent.”
Meanwhile, AllianceDBS Research saw that demand for crude palm oil (CPO) has remained stable despite spikes in Covid-19 cases for China while it believe India’s demand for CPO has bottomed out with its CPO imports reaching an all-time low.
“We believe China’s demand for CPO fared better than expected since it reported the first case of Covid-19 – this could be an indicator of the importance of CPO as a food product.
“We also do not expect a steep decline in CPO exports going forward despite the current global proliferation of the virus.
“Moreover, we believe that we are likely to see a gradual uptick in demand from India as the movement control order will likely result in increased demand for packaged foods in India.”
It went on to believe that the movement control order will have minimal impact on plantation operations.
“We believe the pandemic will cause short-term demand dips due to logistical issues, as most affected countries would have to reassess the way they import or export goods due to precautionary measures to curb the spread of Covid-19,” it said. “We have already seen consistent monthly year on year (y-o-y) decreases in exports from January to March.
“Despite more stringent movement control measures taken, Malaysian exports in March were resilient and grew nine per cent month on month (m-o-m). This attests to the resilience of palm oil demand amid a global pandemic and slowdown in economic activity.
“Going forward, we anticipate that exports will still be lower on a y-o-y basis due to higher CPO prices and lower productions yields but it should trade sideways on a m-o-m basis as we expect palm oil demand to remain relatively resilient in these trying times.”
Despite exports falling y-o-y in March, AllianceDBS Research saw that stock levels were flat due to low production yields that can be attributed to trees going through its resting period after two years of supernormal yields and the haze and El-Nino which happened in the late third quarter of 2019.
“Furthermore, we believe that the instance of extremely low prices from 2018 to the end of 2019 has caused a lot of small farmers to postpone their fertiliser application. We believe this will also have an impact on near-term yields.
“In our view, the current situation might also force farmers to further postpone their fertiliser application, thus further weighing on future yields. Our CPO price assumption is RM2,450, RM2,540 and RM2,560 per MT for 2020, 2021 and 2022.”
Source : The Borneo Post
