KUALA LUMPUR (Feb 27): SD Guthrie Bhd (KL:SDG) said on Thursday that palm oil prices may moderate this year as favourable weather conditions boost output in Indonesia and Papua New Guinea.

Crude palm oil (CPO) is expected to decline after Ramadan to average around RM4,000 per tonne, “if not lower,” said group chief operating officer Mohd Haris Mohd Arshad. Strong supply of substitute soybean oil from Latin America is also adding to the competition in the vegetable oil market, he noted.

“Palm oil will likely need to close the premium gap it currently holds over soybean oil,” he said at an earnings briefing. “As a result, we expect palm oil prices to weaken relative to soybean oil.”

Prices of the edible oil used in everything from lipstick to biodiesel have been trading in a tight range since the year began after gaining nearly 20% last year amid supply concerns. CPO are also commanding a rare premium over that of soybean enjoying a bumper global production season.

The benchmark palm oil futures contract for May delivery is currently trading at RM4,525 on Bursa Malaysia Derivatives.

Meanwhile, SD Guthrie expects higher costs ahead due to the increased minimum wage and planned pension fund contribution for foreign workers, said managing director Datuk Mohamad Helmy Othman Basha.

SD Guthrie remains heavily reliant on foreign labour, with around 20,000 foreign workers in the company’s labour force even with ongoing efforts to mechanise and automate operations, he said at the same briefing.

A mandated 2% contribution to the Employees Provident Fund for foreign labour will have “quite an impact on our overall costs” when coupled with the RM200 increase in monthly minimum wage, he said, without discussing the cost impact on SD Guthrie.

Malaysia relies heavily on foreign workers, particularly from its neighbour Indonesia and South Asian countries India, Nepal and Bangladesh, to toil on its estates as harvesters while locals shun such jobs.

With an estimated 336,500 foreign workers employed in the plantation sector, the industry could be hit by additional costs of about RM137 million each year, according to a February 4 statement adopted by 11 Malaysian plantation organisations affiliated with the industry.

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