Sime Darby Plantation Foresees Prolonged High Palm Oil Prices in 2024

Sime Darby Plantation Bhd, recognized as the world's largest palm oil producer in terms of acreage, has projected that palm oil prices are likely to remain elevated at current levels throughout the year. According to their assessment, crude palm oil (CPO) prices are expected to fluctuate within a range of RM3,700 to RM3,900 per tonne in 2024. While there is a possibility for CPO prices to surpass RM4,000 per tonne, the average price is anticipated to hover around that threshold. The company attributes this outlook to various factors influencing the palm oil market dynamics.

One notable factor affecting output in Sime Darby Plantation's Indonesian operations is the El Nino weather phenomenon, which could potentially hamper production levels. However, the company remains optimistic that output will rebound to pre-COVID levels by the end of the year. Currently, the benchmark palm oil futures for May delivery are trading at RM3,847 per tonne on the Bursa Malaysia Derivatives market.

The surge in palm oil prices observed thus far in the year can be attributed to concerns surrounding supply shortages. Palm oil, a versatile commodity used in an array of products ranging from cosmetics to cooking oil, has experienced a price increase of approximately 4% since the beginning of the year. The market sentiment has been influenced by factors such as the impact of El Nino weather conditions, which elevate temperatures and decrease rainfall, thereby exerting stress on oil palm trees.

During the October to December quarter, Sime Darby Plantation reported that it sold crude palm oil at an average price of RM3,688 per metric tonne. This figure represents an 8% year-on-year decline from RM4,005 per metric tonne recorded during the same period in the previous year. Despite the decline in average realized prices, the company witnessed a 15% increase in fresh fruit bunches' production, reaching 2.39 million tonnes compared to 2.07 million tonnes in the corresponding quarter of 2022.

However, the financial performance for the quarter did not meet expectations, with net profit plummeting by over 64% from the previous year to RM200 million. This decline can be attributed to the impact of lower average realized prices on profitability. Additionally, revenue for the quarter experienced a decrease of 6.88% year-on-year, amounting to RM5.28 billion, compared to RM5.67 billion reported for the fourth quarter of the previous fiscal year.

On Thursday, shares of Sime Darby Plantation closed 0.4% lower at RM4.50, with a total of 3.25 million shares changing hands. Despite the decline in share price, the company remains resilient amidst market fluctuations, anchored by its position as a key player in the palm oil industry and its strategic initiatives aimed at driving sustainable growth and value creation.