FGV warns its palm oil output will drop due to COVID-19 control order

Malaysian crude palm oil producer FGV Holdings says its output will drop this year due to the effect of the movement control order (MCO) put in place since 18 March to combat COVID-19, The Star reported on 28 April.

“In terms of our crops, we are projecting a significant shortfall in production in 2020,” CEO Datuk Haris Fadzilah Hassan said in FGV’s latest annual report.

In 2019, FGV said fresh fruit bunches (FFB) production had risen 5.6% to 4.45M tonnes, while crude palm oil (CPO) output had increased to 3.07M tonnes from 2.82M tonnes previously.

Haris said the MCO had affected the group’s performance this year by limiting the strength of its workforce, shuttering businesses and limiting the movement of consumers.

“For our downstream business, we are expecting a reduction in processing volume especially for the export and bulk product segments,” he said.

The company would be seeking to mitigate these challenges, Haris added, and would be reviewing its strategies to reduce the impact of the virus on its operations.

FGV said it had a total plantation landbank of 439,230ha in Malaysia and Indonesia, including 351,000ha under the land lease agreement with Felda.

The total palm oil hectarage in Malaysia was 338,437ha.

FGV expected CPO prices to trade at between RM2,400 (US$558.46) and RM2,200 (US$511.93) a tonne this year, with tight supply and higher biodiesel mandates in Malaysia and Indonesia supporting prices.

In its outlook for the commodity, FGV said China’s recovery from the pandemic provided relief as demand for CPO was expected to increase as the country replenished its stockpile.

However, competition from lower cost producer Indonesia, as well as COVID-19 challenges in other key importing countries, would cap further price increases.

“While CPO price remains stable in the first quarter of 2020 in spite of COVID-19 challenges, the duration for recovery is crucial for the CPO outlook,” it said.

The price of CPO futures contracts on Bursa Derivatives had dropped 30% so far this year and at close on 27 April, the benchmark third month CPO futures contract had settled at RM2,051 (US$477.25)/tonne. The contract had traded at just above RM3,000 (US$698.08)/tonne in January.