PETALING JAYA: Oil palm plantation companies could see higher cost of production next year with higher oil and gas (O&G) prices driving the price of fertilisers.
Fertilisers are major items for oil palm planters, accounting for about 30% to 35% of cost, according to UOB Kay Hian Research (UOBKH).
It estimates prices of fertilisers to spike by 15% to 20% year-on-year next year, which would offset the higher earnings from high crude palm oil (CPO) prices.
The research house said that the main fertilisers for oil palm, namely, nitrogen and phosphorus, have doubled over the past six months.
This was driven by strong demand, supply constraints and higher input costs.
Besides high prices, it was also getting tougher to acquire supplies. Thus, the sector may again suffer from low fertiliser applications in 2022, which in turn could result in lower yield of production in the short-to-mid term, UOBKH said in a report yesterday.
While many companies may continue to apply full fertiliser programmes despite the high price, the research firm pointed out that they may not be able to receive the ordered volume due to supply constraints and uncertainty in shipment arrangements.
Malaysia and Indonesia are highly dependent on imported fertiliser, but Indonesia is at a slight advantage as local ammonia production is sufficient to meet the domestic requirement, said UOBKH.
“Based on our channel checks, the estimated fertiliser imports for 2021 are just about 60% to 65% of the usual annual requirement.
“As the logistics bottleneck is unlikely to be solved anytime soon, 2022 could see even lower fertiliser imports volume,” it added.
It said smallholders may consider reducing fertiliser applications in order to maximise the return after suffering from low income for many years when CPO prices were low.
Smallholders make up 45% and 35% of total oil palm planted areas in Indonesia and Malaysia.
“The impact of the reduction of fertiliser back in 2018 and 2019 is showing today, as the yield recovery is slower and weaker than usual.
“As a result, production growth from Indonesia and Malaysia may not be able to deliver much growth for 2022,” it pointed out.
CPO prices touched an all-time high of RM5,363 per tonne with a year-to-date gain of more than 42%.
The KL Plantation Index, meanwhile, slipped 3.8% over the same period.
However, the research firm said that the plantation sector’s underperformance was also seen in other markets like Indonesia and Singapore.
“The recent share price recovery should be a one-off re-rating for the potential high earnings growth for 2021.
“However, looking at smaller earnings growth for 2022 and an earnings contraction for 2023, we do not foresee any strong catalyst for the sector to outperform the market,” it said.