Weak crude palm oil prices could hurt Golden Agri

Demand contraction in EU and India could persist.

Golden Agri-Resources (GAR) could get beaten up from the sustained weakness in crude oil prices despite the impending weather conditions, OCBC Investment Research (OIR) said.

According to the US National Oceanic and Atmospheric Administration’s (NOAA) Climate Prediction Center, an El Nino has a 50-55% chance to onset during the Northern Hemisphere fall from September to November. This chance increases up to 65-70% by winter of 2018 to 2019.

“Should weather conditions turn severe, it could have a negative impact on total palm oil production subsequently,” OIR said. “A decrease in overall supply would increase prices, should demand stay the same.”

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They also noted that that the recent contraction in palm oil demand in both the European Union (EU) and India could persist for the rest of 2018.

“In India’s case, an uptick in import tax has increased the cost of imported palm oil to buyers,” the firm explained.

Earlier in 2018, the country imposed higher import duties on crude palm oil from 30% to 44%. Meanwhile, EU is observing a shift from non-sustainable palm oil sources with the
European Sustainable Palm Oil project which aims to achieve 100% imports from sustainable palm oil sources by 2020.

OIR thinks that GAR’s production could expand for the rest of 2018 although palm oil prices could sustain its weakness. The research firm added that the share price’s weakness of the agri-business firm could have been affected by the depreciation of the Indonesian rupiah.

GAR sank into a loss of $53.62m (US$39m) in Q2 2018 from a profit of $30.25m (US$22m) in Q2 2017 amidst weaker palm oil prices and downstream margins.