IOI Corp boss projects up to RM2,600 CPO price per tonne by 1H15

PUTRAJAYA: IOI Corp Bhd, which foresees crude palm oil (CPO) prices improving following the announcement of the nationwide implementation of the B7 biodiesel, expects CPO prices to hover in at RM2,300 to RM2,600 per tonne by the first half of 2015.
"It is very significant," its executive chairman Tan Sri Lee Shin Cheng said, when asked if the implementation of the mandate would reduce stockpile by much, after the group's AGM here yesterday,
The country will increase the amount of palm oil in biodiesel from 5% to 7% from November, boosting the domestic use of biodiesel to 575,000 tonnes a year, working to reduce inventory of CPO and help improve palm oil prices currently hovering at RM2,200 per tonne.
With the anticipated record high soybean crop harvest in the US, the group expects CPO price to stay at the current level in the near term before trending higher towards the end of 2014, when palm oil production enters its seasonal lows and Malaysia implements the B7 biodiesel mandate.
"This year it (CPO price) is cyclical, sometimes it's up and down. Looks like it'll be moving sideways until year-end," said Lee.
Given the prevailing low CPO price, the group expects more demand to come from the biodiesel and biofuel sector. The US Food and Drug Administration's announcement of an impending ban on trans fat is also expected to result in higher demand for palm oil imports into the US in the short to medium term.
Meanwhile, Lee said the group is actively in talks with international players for potential joint ventures (JV).
"We're still looking at it (JV). We have to have international players (as partners). Local players do not have the technology. It's only discussion (stage) now," adding that JV talks are unlikely to conclude in the financial year ending June 30, 2015 (FY15).
He added that the group is concentrating on its plantation operations in Malaysia and Indonesia, and is unlikely to expand to other countries.
"Other countries, such as South Africa, are difficult, too far, and politically unstable. Locally, there's no land. Our latest (acquisition) is Unico-Desa (acquired Unico-Desa Plantations Bhd in 2013)," he said.
As at June 30, 2014, the group's total planted area, excluding that owned by associate companies, stood at 175,131ha with 99% of the area planted with oil palm. The group has 89 estates.
About 66% of the group's palm oil plantation holdings are in East Malaysia, 25% in Peninsular Malaysia and the remaining 9% in Indonesia.
He said Indonesia's prospects for the plantation company looks good with a new President who is pro-business, as well as the foreign ownership cap in plantation companies that did not happen. Overall Indonesia provides lower costs and higher yields, said Lee.
Its subsidiary group PT Sawit Nabati Agro in Indonesia plans to increase its planted area to 20,000ha by year-end, from 16,000ha currently. In addition, the group expects to commission a palm oil mill in the third quarter of FY15.
The group expects a significantly higher contribution from Bumitama Agri Ltd (BAL) as more of their young palm trees reach optimum production age. BAL has 150,000ha of planted oil palm areas and eight CPO mills with a total processing capacity of 3 million MT per year. The average age of the oil palm trees is only about six years, which gives a lot of potential for yield increases in the coming years.
With the increase in mature hectares coupled with higher yielding oil palm trees replanted during the last few years, the group is confident that its fresh fruit bunch yield and oil extraction rate will see a continuous improvement during the next few years.