Golden Agri-Resources’ stock is up smartly on firming palm oil prices, even though China is still in the throes of a slowdown. Is the rebound sustainable? Or, is it a false dawn?

The outlook for the global commodity sector is about as hazy as the skies above Singapore. Yet, Franky Oesman Widjaja, chairman and CEO of palm oil giant Golden Agri-Resources (GAR), doesn’t appear all that worried as he sits down with The Edge Singapore for a rare interview.

Over the past few weeks, palm oil prices have been rising strongly. Prices of crude palm oil futures for December delivery, traded on Bursa Malaysia, have rallied from their Aug 26 low of RM1,910 a tonne to RM2,367 as at Oct 6. The jump is attributed to the El Niño dry weather phenomenon, which causes production to drop. In fact, if the weather pattern persists, Widjaja says Indonesia’s CPO production could drop as much as 30% next year. “This time, the El Niño is quite intense, compared with the previous years.”

If that results in CPO prices climbing higher, the big producers such as GAR could see their earnings improve strongly, even after taking into account the lower production volumes. Meanwhile, GAR has been making strides in its downstream operations, which has helped fuel a turnaround in profitability recently. For 2QFY2015, GAR reported earnings of US$39 million ($55 million), which was 42% higher than 2QFY2014 and 125% higher than 1QFY2015. Revenue for 2QFY2015 was US$1.83 billion, down 10% y-o-y but up 18% q-o-q.