KUALA LUMPUR: MIDF Research set a “negative” call on the plantation sector after considering its challenges, including the European Union (EU)’s decision to phase out palm oil.
The sector also faces difficulties to achieve 100% Malaysian Sustainable Palm Oil (MSPO) by 2020, including the low uptake of certified sustainable palm oil, said the research house in a note today.
It said the palm oil industry has been in the limelight for various sustainability issues, including being labelled the main cause of rapid deforestation and wildlife extinction, especially from the EU.
“The negative perception has put palm oil in a less favourable position as compared to other rival crops even though palm oil is the most efficient and versatile oil crop,” it said, adding that the matter is made worse with EU labelling the commodity as having “high” indirect land-use change (ILUC) risk crop and earmarks it to be excluded as a source for biofuel by 2030.
Currently, about 800,000 metric tonnes of palm oil is used in the production of biofuel in EU for cars and trucks, and this represents 5% of total Malaysian palm oil export or half of the palm oil import to the region.
“In effect, we should see a similar amount of excess in the market should the ban was accounted for, which could lead to an oversupply of MSPO-certified palm oil in the market,” it added.
Meanwhile, the government has mandated that all oil palm groups are to be MSPO-certified, including those who have obtained Roundtable Sustainable Palm Oil status in the country by the end of 2019.
However, as at June 30, 2019, less than 50% of oil palm planted area is certified.
“Palm oil producers might be reluctant to obtain MSPO given the additional costs and unattractive premium which weigh on their profitability,” said the research house.
“At this juncture, pending further development, we are maintaining our negative view on the sector with an unchanged crude palm oil price of RM2,090 per tonne for 2019,” it said.
MIDF said certified plantation companies under its coverage are Genting Plantation, IOI Corporation, IJM Plantation, Kuala Lumpur Kepong, PPB Group, Ta Ann Holdings, Sime Darby Plantation and FGV Holdings. — Bernama