PETALING JAYA: A potential delay in replanting activities among oil palm planters is envisaged this year, given the current record high crude palm oil (CPO) prices, say industry experts.
The spot CPO price on Feb 24 showed a new historical peak at RM6,845.50 per tonne, with the highest and lowest traded contracts at RM6,880 per tonne and RM6,750 per tonne, respectively.
According to Malaysian Palm Oil Board (MPOB) director-general Dr Ahmad Parveez Ghulam Kadir, many planters would normally postpone their replanting activities in efforts to maximise their profits during a period of higher CPO prices.
Citing last year’s performance, he said domestic oil palm replanting activities declined by 31.3% to 110,000 hectares (ha) compared with 160,000ha in 2020.
“This is based on MPOB statistics, which revealed that CPO price increased by 64.1% to RM4,407.00 per tonne in 2021 from RM2,685.50 per tonne in 2020,” Parveez told StarBiz.
Furthermore, the current high crude oil price, which is triggered by the Russia-Ukraine conflict, is expected to push fertiliser prices higher.
“The prices of fertiliser are largely influenced by the movement of crude oil prices,” said Parveez, adding that fertiliser cost generally accounted for 10% to 15% of planters’ total CPO production cost.
“Despite the increase in fertiliser prices, MPOB is of the view that the current high CPO prices are able to offset the rise in planters’ cost of production,” he added.
Malaysian Palm Oil Association CEO Datuk Nageeb Wahab concurred that there could be postponement in replanting activities this year following the record high CPO prices.
Another important point is that the rising CPO prices is expected to further increase the profit margin of oil palm plantation companies, thus leading to a higher payment of windfall profit levy (WPL), said Parveez.
However, he expects the WPL paid will not significantly affect the overall profitability of the oil palm plantation companies, as “the WPL calculations are based on only 3% of the monthly fresh fruit bunches production for plantation”.
Parveez pointed out that the current high CPO prices have benefited the industry players including the oil palm smallholders and plantation companies through higher income.
It provides additional income to the government through higher tax revenue from the CPO export duty, WPL and corporate tax.
The higher CPO prices also contributed to a improved export earnings for the country’s economy.
On the other hand, the higher CPO prices would mean that the government would have to fork out more subsidies for the domestic cooking oils.
“This is to ensure that local consumers will get to buy cooking oil at affordable prices,” he added.
On the export front, Parveez said the higher CPO prices, however, are expected to negatively affect demand, especially from the price-sensitive markets such as India and the African continent.
Furthermore, the price discount between palm oil as against other competing vegetable oils, in particular soybean oil, will narrow further during such high CPO prices.
This would lead to local palm oil to be less price-competitive to other vegetable oils in the global markets, he added.
Apart from higher CPO prices, Parveez said the uptake of palm oil by price-sensitive markets is also dependent on the prices of other vegetable oils, the policy of the exporting countries, trade practices and the relationship between importers and exporters.
For example, India, besides being a price-sensitive market, also imports a large volume of vegetable oils to meet the demand for its huge population.
Apart from its palm oil imports sourced from Malaysia and Indonesia, India also buys other vegetable oils such as soybean oil from Argentina and Brazil, and sunflower oil from Russia and Ukraine.
Parveez opined that “the invasion of Russia on Ukraine is expected to cause delays in sunflower oil shipments, which could provide opportunity for more palm oil imports by India to fill this gap.”
Meanwhile, Malaysian Palm Oil Association CEO Datuk Nageeb Wahab concurred that there could be postponement in replanting activities this year following the record high CPO prices.
“While planters are enjoying such good prices now, they (especially smallholders) must save up for the rainy days once the CPO prices start to tumble down,” he said.
He noted that planters should not be complacent and must seriously look into their efficiency issues by undertaking replanting and improving their yields as well as better managed their increasing cost of production, among others.
Nageeb also raised his concerns on the stagnant domestic CPO production and yield growth amid the current acute labour shortage in estates nationwide.