Labour shortages in Malaysia, high fertiliser prices, unfavourable weather conditions and the ongoing conflict in Ukraine and Russia are some of the factors that contribute to the current tight fundamental supply and demand balance for edible oils, said Golden Agri-Resources (GAR) director of investor relations Richard Fung.
In a financial result media briefing, Fung said the tight supply is evident in the reported low inventory levels. “For example, the Malaysian Palm Oil Board has [reported] slightly over 1.5 million tonnes and [this is] expected to go even lower to a multi-year low."
He added that while GAR expects palm oil to see some production growth this year, it will only partly alleviate the very tight supply and demand balance.
“On the palm oil side, we see some restrictions in production growth. For example, the fertiliser levels among smallholders seem to have been low given the high fertiliser prices, so they will not be able to achieve optimal yields,” said Fung.
The company also does not expect the labour issues in Malaysia which has been exacerbated by the pandemic to resolve in the near term, contributing to the slowing growth of palm oil production.
Meanwhile, other vegetable oils are affected by the dry weather conditions caused by the El Niño in South America, which has reduced the expectations of soybean oil production. The conflict in the Black Sea region also plays a role, said Fung.
“Russia and Ukraine represent about 60% of sunflower oil production, more than 75% of exports and this is expected to have a further tightening impact on the supply and demand situation."
Fung said GAR is ‘very much in support’ of the Indonesia Domestic Market Obligation policy, which enforces palm oil exporters to sell 20% of their export volumes domestically at a stipulated price.
“The government has concerns about the availability of cooking oil in Indonesia, especially with the Lebaran coming up.
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“This of course has a slightly negative impact on our business as the selling price is lower, but at the same time it only represents a small portion of our total sales,” said Fung.
Commenting on the sustainability of the high crude palm oil (CPO) price which is currently hovering at around RM6,300 per tonne, Fung acknowledged that analysts have been raising their price expectations for the year and the consensus seems to be that the prices will be sustained well into the second half and probably for the full year.
“It is certainly true that these very high prices may not be sustainable and will result in demand destruction. But our business is doing very well even if the prices come down from here. [Additionally] in Indonesia, there is a progressive export tax structure which means that some of the benefits of the higher prices goes to the government.
“But the reverse is of course also true, that if the prices were to come down, the realised price for GAR does not come down that much. So we are very comfortable with where the prices are today,” said Fung.
GAR reported earnings of US$323 million for the 2FY2021 ended December, bringing earnings for the FY2021 to US$476.2 million, 14.9 times higher than the US$31.8 million reported in the FY2020.
The group declared a final dividend of 1.077 cents per share, over two times higher than the final dividend per share of 0.48 cents in the previous corresponding period. This brings the total dividend per share to 1.605 cents for the FY2021, up 234% y-o-y.
GAR is the most heavily traded counter on March 1, with some 67.4 million shares changing hands as at 3.51 pm, with the last done price at 29.5 cents, up 3.51% for the day.
