KUALA LUMPUR (Sept 19): Planters are expected to enjoy lower production costs and improved crude palm oil prices in 2024, said MIDF Research, on the back of easing fertiliser prices and lower production seen due to El Nino.

However, the research house has maintained a “neutral” call on the sector, on concerns of “fragile demand outlook on the back of inflationary pressure coupled with tight household spending on high base interest rate locally and globally”.

Further, the scenario of lower costs and higher selling prices also makes planters “appear to have more room to absorb windfall profit tax”, the research house said.

MIDF Research sees “revision for windfall profit levy [to] remain status quo now”, but pointed out that the scenario could allow the government to adjust a larger windfall profit levy in 2024-2025.

“Since there is not much change in costs of production for planters in this year, we’re seeing the revision for windfall profit levy remain status quo now.

“However, it can be tweaked higher for 2024 following (i) lower locked-in fertilisers price in 2H203 (which will result in lower fertiliser cost in 1H2024) [and] (ii) in anticipation of higher average realised CPO price,” it said. 

“Notably, feedstock for fertiliser including urea, phosphate, and potassium have stabilised, to the average of US$310/MT (-60% y-o-y), US$344/MT (+31% y-o-y), and US$369/MT (-68% y-o-y) respectively,” it said.

“Meanwhile natural gas prices in Europe dropped to average of US$31.6/mmbtu (-64% y-o-y).

“Therefore, we expect most of the planters will incur lower operational expenses in 2H2023 at least, due to typical industry practices (which see) fertiliser stocks locked in 6-12 months in advance,” it said.

“Our top pick for a plantation company is Kuala Lumpur Kepong Bhd with a target price (TP) of RM24.60,” it added.

The research house has forecasted RM3,800/MT in CPO price in 2023, followed by RM4,200/MT for 2024. 

Crude palm oil futures contracts traded at RM3,729/MT towards end-2024, with a peak of RM3,859/MT for April 2024 settlement, Bloomberg data showed.

On Monday, Plantations and Commodities Minister Datuk Seri Fadillah Yusof said the government is reviewing the existing windfall tax with plans to complete it next year.

This follows calls by planters to reassess the tax rate and threshold.

The last time Malaysia adjusted the windfall tax was to align the percentage in Sabah and Sarawak from 1.5% to 3% rate, which is similar to Peninsular Malaysia.

At the time, the government also increased the threshold by RM500/MT, to RM3,000/MT in the peninsula and RM3,500/MT in Sabah and Sarawak.