PLANTATION SECTOR

BUDGET 2019 was a non-event for the plantation sector. Kenanga Research said the sector could have seen some relevant proposals.

These include an increase of minimum wage by RM50 to RM1,100 per month nationwide, effective January 2019; a reduction in the extension levy for foreign workers in the plantation industry who have served for over 10 years, from RM10,000 to RM3,500 per worker per year; implementation of biodiesel B10 programme for the transportation sector and B7 for the industrial sector in 2019; and an allocation of RM30mil to help smallholders obtain the Malaysian Sustainable Palm Oil (MSPO) certification.

“Both the increase in minimum wage and reduction in the extension levy per se have a minimal financial impact on planters under our coverage as many are already paying above the minimum wage levels, and the effects are countervailing.

“The implementation of B10 programme is expected to boost crude palm oil (CPO) consumption by an additional 150,000 to 200,000 tonnes, which is insignificant compared with our local annual CPO production of 20 million but is, nonetheless, encouraging.”

Kenanga Research also said the allocation of RM30mil for smallholders’ MSPO certification is expected to increase the availability of sustainable fresh fruit bunches supply for plantation companies with oil mills.

“Overall, we deem Budget 2019 a non-event for the plantation sector as it has a minimal financial/operational impact on planters under our coverage.”

The research house also said it is revising its 2018 CPO price forecast from RM2,400 per tonne to RM2,300 per tonne.

“The revision is necessary as our earlier-expected CPO prices recovery in the second half of 2018 have yet to take place thus far.

To achieve an average of RM2,400 per tonne for 2018, CPO price has to recover above RM2,800 per tonne level for the remaining two months, which we think is nearly impossible.”