The plantation sector outlook in 2022 will continue to be challenged by the environmental, social and governance issues, higher taxation, lower export amid bullish CPO price projection.
Exports to be affected by bullish CPO prices
In 2021, the share prices of most listed plantation companies had a dismal performance, which failed to reflect on the strong CPO prices that was driven by the supply tightness situation.The benchmark Kuala Lumpur Plantation (KLPLN) Index has dropped by about 11% year-to-date compared with a 36% jump in CPO price this year.He said this resulted in consumers reducing their spending on electrical goods in 2020 and 2021, hence affecting earnings of small businesses.This signifies that there is a disconnection between the share prices and the higher CPO price realised by the plantation companies.These cookies will be stored in your browser only with your consent.Analysts generally opined that the underperformance could be due to increasing ESG concerns by local and foreign fund managers when constructing their portfolios and also the lack of participation from retail investors in the sector.“The major flood which hit the Klang Valley recently is a wake-up call for the government on the mismanagement of the environment in Malaysia,’’ she said.CLICK TO ENLARGE According to Kenanga Research, the plantation sector performed poorly in 2021 despite strong CPO prices and planters’ earnings upgrades following two strong quarters of earnings, which surpassed expectations.Davanees, 34, said his New Year wish would be to see an economic revival and a complete end to the Covid-19 pandemic.
Going into 2022, the research house envisaged that planters’ will likely post good fourth quarter 2021 and first quarter 2022 results.Hotel sales manager Mohd Yusof Ab Rahman had looked forward to the reopening of the border between Johor and Singapore for fully vaccinated visitors.Necessary Always Enabled Necessary cookies are absolutely essential for the website to function properly.“However with CPO prices softening, we sense caution among investors.“This is an understandable sentiment amid expectation of a commodity price down-cycle, hence our neutral stance on the plantation sector,” it said in its latest report.“As a border town, the local economy is largely dependent on thousands of Malaysians working in Singapore and visitors from the republic,’’ said Yusof.Kenanga Research also expects the plantation companies to reward investors with higher dividends, and pare down borrowings or both – thanks to their stronger cash flows.Non-necessary Non-necessary Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies.“However, what would be even more appealing is a sensible expansion plan,” the research house added.Johor Indian Muslim Entrepreneurs Association (Perusim) secretary Hussein Ibrahim said everyone had high hopes that the pandemic would end in 2022.Noodle stall owner Voon Ewe Hoo, 56, said his wish would be for an economic recovery and for essential items to be cheaper.
On the supply situation, it anticipated that the oil and fats market to stage a strong recovery next year.“This will come from improving palm oil output and sizeable soybean harvest in both South and North America.He said the Johor state government needed to act fast to attract domestic and foreign investors to invest in Johor which would create many job opportunities.” Going into 2022, Kenanga Research envisaged that planters’ will likely post good fourth quarter 2021 and first quarter 2022 results.“However with CPO prices softening, we sense caution among investors.He said both Malaysia and Singapore should consider opening the Second Link Crossing in Tanjung Kupang, Gelang Patah for the VTL-Land next year.The research house noted that prices of oil and fats have been facing downward pressure, with CPO moderating from its record levels in October 2021.“All of us have been battling this pandemic for the past two years in our own way and realistically, it does not seem like it will end soon.
“However, this is still premised on an anticipated upswing in supply actually coming through.He said the temporary suspension of the VTL-Land during the Christmas period, had affected the festive mood in the hospitality sector in the state.“Until inventories have really improved to an adequately comfortable level, there is little room for the oil and fats market to maneuver or absorb negative news, be it because of poor weather or another lockdown to logistical disruptions.Kenanga Research said any of these, if serious enough, could derail or dampen the forthcoming anticipated supply upswing in 2022.He said unlike Kuala Lumpur, Johor Baru as a border town was badly affected due to the prolonged closure of the border with Singapore since March 18, 2020, under MCO 1.“As such, we expect CPO prices staying at RM4,000 per tonne for the first quarter of 2022, before easing over the months to about RM3,000 per tonne as the end of the year approaches.” Separately, UOB Kay Hian expects CPO prices to stay elevated into the first half of 2022, but foresees lower average selling prices (ASPs).Teo said Johor should step up discussions with the Federal Government on the opening of VTL-Air with other countries such as Indonesia, Thailand and Vietnam.
“CPO price came in surprisingly high and remained high for longer-than-expected.“This is because the expected higher production growth in the second half of 2021 did not materialise, and the green direction in the United States led to stronger demand for soybean oil for the production of renewable diesel,” it added This is also supported by low inventory as CPO production is not expected to see any strong growth until the second half of 2022, when the worker shortage problem eases in Malaysia.Safe Johor River founder Poh Paik Yik said Johor must address environmental issues especially with regard to polluted rivers in the state.Hence, stronger production will only come in the second half of 2022 and this could lead to lower CPO prices, said UOB Kay Hian.“With that, our CPO ASP expectations are at RM4,300 in 2021, RM3,800 in 2022 and RM3,000 per tonne in 2023 respectively.Poh said rivers were the main source of raw water supply and failing to keep them clean could lead to severe water problems.” MIDF Research also does not expect any drastic decline in CPO prices next year.
However, it pointed out that the current high CPO prices could dampen demand going forward.He added that the major flash flood which hit certain districts in Selangor this month was a lesson for Johor to start looking at its flood mitigation system.“This is predicated on lesser demand for palm oil-based biodiesel due to its current premium over brent crude oil.“It should be noted that the spread between palm oil and gas oil has widened significantly.This has possibly made palm oil to be a less appealing feedstock for biodiesel.” Meanwhile, the Council of Palm Oil Producing Countries (CPOPC) in its Palm Oil Supply and Demand Outlook Report 2022 said the CPO price movement in 2022 could be dampened by higher soybean oil output in Brazil.
“In 2021 and 2022, Brazil and Argentina’s soybean production is estimated at 147.9 and 45.8 million tonnes, respectively.“Record high soybean production is expected in the 2021 and 2022 season, unless adverse weather conditions amid La Nina significantly deteriorate soybean growing conditions.” Additionally, the CPOPC said the upside potential of soybean yields could also be limited by concerns over lower or delayed input applications, following soaring fertiliser and pesticide prices.
“While these factors support bullish vegetable oils prices in 2022, there are worries over the recurrence of Covid-19 pandemic lockdowns, due to the emergence of the Omicron variant, which could slow global economic recovery.” CPO prices in 2021 started off on a strong note at RM3,903 per tonne.It hit a record high on Nov 19, 2021 at RM5,429 per tonne, before retreating to around RM5,161 and RM5,300 per tonne recently.Article type: metered.
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