Tuesday 03 Oct 2023
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KUALA LUMPUR (Sept 14): The Malaysian Palm Oil Council (MPOC) has lowered its projections for Malaysian total palm oil production (CPO) in 2022 to 18.3 million metric tonnes (mt) from 18.5 million mt previously, as labour shortages in the plantation sector continue to affect the palm oil industry's performance. 

Labour shortage will continue to be a major problem in the plantation industry, as the expected arrival of foreign labour failed to materialise, further worsening the sector's productivity, said MPOC chief executive officer Wan Aishah Wan Hamid.

“During the period of January–August 2022, the CPO production in Malaysia had reached 11.56 million mt, as compared to 11.60 million mt in the same period of last year. Although MPOC was anticipating that Malaysian CPO production will reach 18.5 million mt in 2022, however, we would revise our estimate to 18.3 million mt for the current year,” Wan Aishah said in her response to theedgemarkets.com’s queries on Wednesday (Sept 14). 

She also stressed that CPO prices in September may continue to be under pressure, as Indonesia is still carrying huge stockpiles of palm oil which are being offered to all export markets. 

“Malaysian palm oil stocks at the end of August 2022 have also exceeded two million mt, which is [the] highest in 33 months. Keeping in view that we are in peak production months, the prices may continue to current trend and range between RM3,600–RM3,750 per mt in the remaining month,” said Wan Aishah. 

On the other hand, she said the impact of the US Federal Reserve’s rate hike on CPO prices is likely to be an indirect one. 

“It has been observed that increase in interest rate affects the exchange rates, therefore affecting CPO prices from Malaysia. Historically, there has been an inverse relationship between the interest rates and commodities prices. However, in [the] case of palm oil, physical demand from countries like India, China, Pakistan will support the prices,” she explained. 

TA Securities Research in its note dated Sept 13 said CPO prices are set to decline in September, as the market is bracing for another rate hike to be announced by the US Federal Reserve next week, exerting selling pressure in commodity markets. This is coupled with anticipated rise in palm oil supply in the market and fears of lower demand due to China’s lockdowns. 

Plantation companies still affected by negative sentiments despite ESG efforts

Plantation companies are still affected by negative sentiments, despite their best efforts in ensuring compliance to the environmental, social and governance (ESG) criteria, said Wan Aishah. 

“The Malaysian palm oil companies are subjected to the mandatory Malaysian Sustainable Palm Oil (MSPO) certification which covers all ESG requirements, while some are members of RSPO and even have their own ESG framework. Despite all these efforts put in place, plantation companies are still perceived as high risk, as cases from other commodities, i.e. the glove makers, strongly support this,” she said. 

However, recently, there is a disconnect between ESG concerns and prices of plantation companies, as they started to offer better returns. 

“With the ongoing global conflict, [and] policies that resulted in high inflation and surging demand from pre-pandemic growth, which resulted in higher commodity prices, plantation companies have seen prices starting to sync with profits, as investors couldn’t overlook the high returns.

 “We hope that this trend will continue. ESG is a journey of continuous improvements. Plantation companies now have a better understanding of ESG and will continue to prioritise efforts for compliance, as they know this will not only favour the society and environment, but their profits as well. Plus, the palm oil industry already covers 15 of the 17 United Nations Sustainable Development Goals (UNSDG), which covers all key aspects of ESGs,” she added. 

Edited ByLam Jian Wyn
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