Drive to clean up palm oil sector to raise prices

A slowdown on palm oil plantings forced by environmental lobbyists is likely to foster a long-term rise in prices of the vegetable oil, MP Evans said, forecasting that the trend would boost its own prospects.

While only a minority of palm oil groups have signed up to sustainability criteria, aimed at preventing rainforests being cleared for plantations, the green lobby has claimed some notable wins.

Earlier this month, Burger King, the fast food chain, followed Kraft, Nestle and Unilever in breaking ties with Indonesian palm oil giant Sinar Mas, whose empire includes Singapore-listed Golden Agri-Resources.

In the long term, “the expected general slowdown in the rate of development of new oil palm areas in Indonesia, following environmental pressures, is likely to lend support” to palm oil prices, MP Evans said.

Company chairman Peter Hadsley-Chaplin added that “the outlook for palm oil… appears favourable for both the short and longer term”.

Strong market

While palm oil prices on the much-watched Kuala Lumpur palm oil market have proven stable this year, held back by the strength on the Malaysian ringgit, those in Rotterdam have risen by 15% since the end of June to “historically robust” levels around $900 a tonne.

MP Evans achieved $809 a tonne for its palm oil in the first six months of the year, 23% higher than the same period of 2009.

And it said it was “well placed” to benefit from further strength fostered by cutbacks in plantings, with the young age profile of its oil palm estates meaning they have their most productive days yet to come.

The group is itself rolling out a planting campaign in Indonesia, where it has sown 14.500 hectares as of the end of June, while selling estates in Malaysia, the second-ranked palm oil producing country.

Beef prospects

MP Evans added that it was optimistic for prices of its other major product, beef, too,

“World beef prices, in dollar terms, are trading at historically-high levels and many analysts expect this upward trend to continue in response to robust demand, especially from the Middle East and Asia,” the company said.

Prices for grass-fed cattle at its Australian operations had “continued to be firm”, although those of the heavier animals produced by its NAPCo operation, which are grain-finished, had weakened over the last two months.

MP Evans blamed the decline on the strength of the Australian dollar, although it does also co-incide with restrictions by Indonesia, a large cattle buyer, on imports of animals above 350kg in weight.

Rabobank said last week that while “young cattle prices have risen strongly, producers looking to sell heavier cattle, particularly in northern Australia, are feeling the effects” of Indonesia’s curbs,

Share reaction

Nonetheless, the robust beef prices in the first half helped MP Evans report group earnings up 29% at $12.0m, on revenues up 27% at $15.3m.

Excluding accounting gains on biological assets, earnings rose nearly 10-fold.

The results were termed “strong” by analysts at Panmure Gordon, who kept a “buy” rating on MP Evans shares with a target of 470p.

The shares closed 1.3% higher at 401p in London.

http://www.agrimoney.com/news/drive-to-clean-up-palm-oil-sector-to-raise-prices–2231.html

For more information on Biofuel Investments, please visit www.sceptreinternational.com.

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