Higher costs hurting some small palm oil planters

October 22，2008
Source: http://biz.thestar.com.my

PETALING JAYA: The sharp drop in crude palm oil (CPO) prices, rising cost of raw materials and burdensome taxes have resulted in the cost of production (COP) escalating among local plantation players, hurting smaller and newer plantation companies, especially those from Sarawak.

Planters claim that the current COP had surged, on average, RM1,200 to RM1,700 per tonne now.

The COP of more efficient planters jumped at least 50% to RM1,200 per tonne currently from RM600 to RM650 in the past five years.

The COP at the less efficient planters, as well as new planters, which meant younger palm trees with lower yields, shot up 87.5% to above RM1,500 per tonne from RM800 earlier.

“Just imagine with a COP above RM1,500 at the current CPO price of RM1,600 to RM1,700 per tonne, many medium to small-time planters will be facing difficulties in making (decent) margins,” said Malaysian Estate Owners’ Association president Boon Weng Siew.

Analysts have estimated that the COP among Sarawak oil palm players would be the highest nationwide at RM1,700 to RM2,000 per tonne.

“At current CPO price of RM1,700, how are Sarawak players going to break even or service their high borrowings at the banks and pay the windfall tax?” Boon asked.

He said the COP situation has changed dramatically, especially the price of fertilisers.

The price of fertilizers had gone up by almost three folds to RM4,000 per tonne from RM1,300 to RM1,400 per tonne over the past three years.

The COP of efficient planters like IOI Corp Bhd and United Plantations Bhd is estimated to be in the range of RM1,100 to RM1,200 per tonne “at best,” according to Boon.

Analysts have projected the two companies’ yield at 25 to 28 tonnes per ha per year, which was higher than the national industry average of 20 tonnes.

Plantation giant Sime Darby Bhd is said to have an average COP of about RM1,100 per tonne.

Plantation analysts projected the COP for medium-sized planters like IJM Plantations Bhd, Tradewinds Plantation Bhd and Asiatic Development Bhd at RM1,300 to RM1,500 per tonne.

Of late, many oil palm planters nationwide are struggling to keep their escalating COP at bay while grappling with the current decline in crude palm oil (CPO) prices.

They also have to contend with taxes deemed unfair such as the windfall tax and the cess imposed by the Malaysian Palm Oil Board (MPOB), as well as the high cost of fertilizers, chemicals and fuels.

The CPO price trend in November and December would be critical to determine the actual margin erosion among local plantation companies, an analyst with a bank-backed brokerage said.

But he noted that the average CPO price at RM3,000 per tonne so far this year was still higher than the 2007 average at RM2,600 per tonne.

“I strongly believe that major oil palm plantation companies can still make good profits for 2008, given the higher CPO average this year and many have locked in their CPO selling price at RM3,000 per tonne in the previous months,” the analyst said.

Boon said many Sarawak-based oil palm plantation players, as new entrants with poor FFB yields, would be hit harder this year, given the bearish CPO price, high COP and the various taxes imposed on them such as the windfall tax.

Last week, seven major Sarawak oil palm companies appealed to the Government to waive the windfall tax or raise the CPO threshold price to RM3,000 per tonne from RM2,000 for calculating the windfall tax.

The Government has imposed a windfall tax on CPO sales at above RM2,000 per tonne, with a 15% tax applicable to plantations in mainland Malaysia, and a 7.5% tax for those in east Malaysia.

Ta Ann Holdings Bhd, a giant timber group with heavy investments in oil palm plantations, is worried.

Managing director Datuk Wong Kuo Hea said: “Seasoned Peninsular Malaysia and Sabah planters have enough hectarage of profitable harvesting area to be financially self dependent.

“Sarawak, as a late entrant, has the lowest area planted with only 20% that can contribute to profit. We are also not financially self-sufficient in our operation and still require huge injection of funds into our new plantations.”

Analysts have projected that many Sarawak planters would continue to make losses from the first to fifth year of harvesting but would start to make profit only in year six if the CPO price was at RM1,700 per tonne.

Top listed Sarawak-based planters include Ta Ann, Sarawak Plantations Bhd, Rimbunan Sawit Bhd, Sarawak Oil Palm Bhd and WTK Holdings Bhd.