IOI Corp expects CPO prices to remain firm

Satisfactory performance of plantation segment seen

“Raw material price, in particular palm kernel oil price, has been low and there is potential upside with China announcing plans indicating a relaxation of its strict Covid-19 policies starting 1Q23.” IOI Corp Bhd

PETALING JAYA: IOI Corp Bhd is expecting firm crude palm oil (CPO) prices for its next two financial quarters ending March 31, 2023.

In a filing with Bursa Malaysia, the group noted CPO price had declined to a low of RM3,300 per tonne level in September, before rebounding to the RM4,000 level since end-october.

“The price recovery is due primarily to uncertainty about extension of the Black Sea’s grain export arrangement as well as the high rainfall in Malaysia and Indonesia which is expected to hamper the harvesting of oil palm fruits.

“These factors, coupled with the seasonal low in oil palm production during the first quarter of 2023 (1Q23), are expected to sustain CPO price at a level above RM3,700 per tonne until 1Q23,” said the leading global integrated and sustainable palm oil player.

IOI Corp expects its plantation segment’s oil palm fruits production in the 4Q22 to drop slightly against the seasonal downward trend, as its young palm trees enter into a delayed peak production cycle and as more migrant workers are employed in its plantations.

“With CPO prices holding firm, the financial performance of our plantation segment is expected to be satisfactory in the fourth quarter of 2022,” said the group.

Its refinery and commodity marketing sub-segment expects demand for palm oil is to moderate during the winter months in the Northern Hemisphere while margins are volatile due to changes in Indonesia’s palm oil export levy structure.

Operating conditions in its oleochemical sub-segment are expected to be challenging with high energy costs and the global economic slowdown.

“On the other hand, raw material price, in particular palm kernel oil price, has been low and there is potential upside with China announcing plans indicating a relaxation of its strict Covid-19 policies starting 1Q23.

“The same factors are in play for our specialty fats sub-segment, although the demand for food is normally more resilient,” it said.

IOI Corp also pointed out that although its US dollar-denominated borrowings have declined substantially since June 2022, the highly volatile greenback is still impacting its foreign exchange translation loss on its dollar denominated borrowings.

“Going forward, the US dollar exchange rate is expected to be elevated and volatile, in line with the monetary policy tightening stance of the US Federal Reserve,” said the group.

For its first financial quarter ended Sept 30, 2022 (1Q23), IOI Corp’s net profit dropped 40% year-on-year (y-o-y) to Rm167.5mil or earnings per share of 2.7 sen while revenue rose marginally by 1% y-o-y to Rm3.67bil.

The group pointed out that in the 1Q23, non-operating and one-off items included translation losses on foreign currency denominated borrowings and deposits of Rm142.1mil (versus only Rm26.3mil a year earlier) as well as fair value losses on derivative financial instruments of Rm216mil (versus Rm133.5mil a year earlier).

“The underlying pre-tax profit of Rm656mil for 1Q23 was 8% higher due mainly to higher contribution from resourced-based manufacturing segment, partly offset by lower contribution from the plantation segment,” noted the group.