Worker levy to have minimal impact on planters
KUCHING: The team at CIMB Investment Bank Bhd (CIMB) believes plantation players will see minimal or no impact at all from the recent move to shift responsibility of paying the foreign worker levy to employers.
This comes as the Deputy Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi recently announced that employers will have to personally incur the levy for hiring foreign workers from January 1, 2017 instead of deducting it from the workers’ wages.
“Initial checks with planters under its coverage revealed that this was likely to have minimal or no impact on their earnings as they have already been absorbing the foreign workers’ levy of RM640 per worker over the past few years,” it added in an agribusiness note yesterday.
Looking at the sector, CIMB Research predicted that Malaysian palm oil inventories may have grown by 0.6 per cent month on month (m-o-m) to 1.67 million tonnes at end-December 2016.
Official figures will be released on January 10, 2017.
Initial checks with planters under its coverage revealed that this was likely to have minimal or no impact on their earnings as they have already been absorbing the foreign workers’ levy of RM640 per worker over the past few years.
Findings from a survey of 17 plantation areas by the CIMB Futures team revealed that Malaysian crude palm oil (CPO) output fell 7.8 per cent m-o-m to 1.45 million tonnes in December 2016.
It further noted that palm oil exports fell by approximately 3.8 per cent m-o-m, based on export statistics released by Societe Generale de Surveillance (SGS) and Intertek Testing Services (ITS).
“The projected 7.8 per cent m-om drop in fresh fruit bunch (FFB) output was below the historical December m-o-m average decline of 13 per cent over the past five years,” it observed, pegging this to be due to the lower production base in November and fading El Nino effect.
This was also lower than the research arm’s earlier projection of a 10 per cent m-o-m decline in output.
“Year on year (y-o-y), CPO output is expected to improve by four per cent in December 2016, after 11 consecutive months of falling y-o-y output,” it added.
Output from Sabah, Peninsular Malaysia and Sarawak estates fell 12 per cent, 7.7 per cent and 3.5 per cent m-o-m, respectively.
CIMB Research estimated that Malaysian palm oil exports fell circa 3.8 per cent m-o-m in December 2016, based on estimates from cargo surveyor SGS and ITS.
“This is lower than our earlier projection for exports to fall by 10 per cent m-o-m, due mainly to stronger-than-expected demand from India and Pakistan,” it said in the note.
“However, this is more than offset by weaker demand from China and US leading to lower m-o-m exports.”
On stocks, CIMB Research noted that the expectation of higher stocks in December could cap the rise in CPO prices.
However, the research arm’s projected end-December stock level of 1.67 million tonnes remained low as it represented a 36 per cent decline from a year-ago level and around 1.25 months coverage of average monthly palm oil exports from Malaysia.
As for CPO prices, CIMB Research said it has been holding firm above RM3,000 per tonne in December due to the weakerthan-expected ringgit and tight stockpile.
As such, the 2016 CPO price was projected to average RM2,650 per tonne and the research arm expected CPO price to trade in the range of RM2,800 to RM3,200 per tonne in January 2017.
CIMB Research thus maintained its ‘neutral’ stance and average CPO price forecast of RM2,600 per tonne for 2017.
CIMB Research