Business

Tuesday December 30, 2008

Oil palm fruits left to rot in Indonesia as prices fall

By LOONG TSE MIN


PETALING JAYA: Low crude palm oil (CPO) prices and poor transportation have led to fresh fruit bunches (FFB) being left to rot in Indonesia and the situation has been a near miss for Malaysia.

Smallholders in Indonesia had been facing this problem since October when the CPO price hit a low of RM1,390 a tonne from a high of RM3,500 in mid-June, a Sabah planter told StarBiz.

He said Malaysia’s plantation industry narrowly escaped a similar situation. “At one stage last month it was critical but, basically, Sabah has improved and there is no rotting. Now exports have picked up.”

Major palm oil consuming markets, China and India, had earlier this year held back their purchases due to volatile prices and the global financial crisis, he said.

“I think they have been holding back for too long and had to start buying in November and December for their consumption,” he added.

On how the FFB being left to rot would affect CPO prices and the sentiment for stocks of companies involved in the sector, an Aseambankers analyst felt the oversupply had already been factored in.

“It suggests oversupply but has mostly been priced into CPO and plantation share prices,” he said.

The analyst does not expect CPO prices to fall further and instead pointed out that CPO futures were “showing surprising strength despite the plunge in crude oil prices.”

“It may make sense for planters (in Indonesia) to just leave the fruit in the fields if the prices they receive are too low,” he added.

He believes that there is a bottleneck at the storage tanks as China and India held off their purchases of CPO, and had been more preoccupied with discussions about the global financial crisis.

“If millers are at maximum capacity at their storage tanks or mills such a situation is bound to occur,” he said.

Nonetheless, plantations should now have passed their peak production period, from July to November, so supply should fall going forward but not necessarily this month.

“I don’t know if production will come down in December,” he added.

A planter based in Peninsular Malaysia told StarBiz that there had been no risk of rotting FFB here. “As far as big plantations are concerned there is no such case of rotting fruit. Nothing I am aware of,” he said.

As to what would happen if fruits are left unharvested, a CPO futures trader said they would automatically be removed by animals, making insects, bats, birds and monkeys which eat these ripe fruits the happiest in this situation.


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