Weak crude palm oil (CPO) and palm kernel prices led to a 64% fall in net earnings for Malaysia’s Sime Darby Plantation group for the six months ending 30 June.

Net earnings for the six-month period were RM101M (US$24M), a 64% decrease against the same period the previous year, the group reported on 30 August.

A 4% year-on-year (y-o-y) rise in fresh fruit bunch (FFB) production, an increase in the oil extraction rate (OER) at 21.34% and higher earnings from subsidiary Sime Darby Oils, were not enough to mitigate the adverse impact from weaker CPO and palm kernel prices, which declined 16% y-o-y from RM2,414/tonne (USD$577) to RM2,016/tonne (US$483) and by 41% y-o-y from RM1,897/tonne (US$454) to RM1,116/tonne (US$267) respectively, Sime Darby said.

Net earnings for second quarter 2019 were RM27M (US$6.4M) against RM30M (US$7M) in the same period last year.

“The current quarter continued to be adversely affected by weak CPO and PK prices, but was partially cushioned by lower finance costs, with capitalisation of higher borrowing costs and lower net tax resulting from the recognition of deferred tax assets on losses suffered by some subsidiary companies,” the group said.

In the second quarter, the average CPO price realised declined by 15% y-o-y from RM2,379/tonne (US$569) to RM2,021/tonne (US$483) while the average palm kernel price realised was 39% lower y-o-y from RM1,682/tonne (US$402) to RM1,020/tonne (US$244).

The group produced 2.43M tonnes of FFB in second quarter 2019, which was comparable to the same period in 2018 (2.44M tonnes). It also recorded an improvement in OER from 21.11% to 21.27%.

“Low commodity prices continue to impact the industry as well as Sime Darby’s earnings,” said Mohamad Helmy Othman Basha, group managing director. “We have aggressively put in place measures that will help us navigate through the current market conditions. These include the strategy to balance the profit contribution from both our upstream and downstream segments as a mid to long-term solution.”

Sime Darby Plantations is one of the world’s largest oil palm plantation companies with an oil palm planted area of more than 600,000ha across Malaysia, Indonesia, Papua New Guinea, Solomon Islands and Liberia. It produces around 4% of global CPO. Its downstream business is carried out by Sime Darby Oils, which manages 11 refineries with a total capacity of 3.8M tonnes/year, and manufactures and markets oils and fats products, palm oil-based biodiesel, nutraceuticals and other derivatives.