Golden Agri-Resources Ltd expects its palm and palm kernel oil production to rise around 5 percent this year, coming in at the lower end of a projected annual growth rate as dry weather hurts yields, a senior company executive said. A smaller rise in output from the world's second-largest oil palm planter by acreage could underpin palm prices, which fell almost 15 percent in 2014 as high rival oilseed supplies and sliding crude oil prices dented demand for the tropical oil from the food and energy sectors.
Based on normal weather conditions, Golden Agri could expect a 5-10 percent rise in output, but this year "because of the weather concerns we are expecting to hit the lower end of that number", the firm's chief financial officer, Rafael Concepcion, told Reuters on Tuesday.
Golden Agri, parent of Indonesian palm giant PT Sinar Mas Agro Resources and Technology, produced 2.95 million tonnes of palm in 2014. It has plantations spread over 473,000 hectares, mostly in Indonesia's producing areas of Sumatra and Kalimantan, and is seen adding 5,000 hectares more in 2015.
Although a strong El Nino weather pattern, which results in below-average rainfall in top palm producers Indonesia and Malaysia, failed to emerge last year, there were recent reports of lengthy dry spells in both Kalimantan and Sumatra.
"This year there seems to be an increasing belief by weather analysts that second half weather will be leaning towards El Nino," Concepcion said. "Whether it will really hit El Nino or just a serious water deficit, that's something to wait for."
Palm prices are expected to stay within $575 to almost $700 a tonne for the next six months, Concepcion said, adding that the company did not typically give a price outlook and that weather, biodiesel demand, global soybean output and other factors could alter this trend.
Potentially supportive of palm prices, currently at 2,165 ringgit ($585) per tonne, is a recent Indonesian push to boost domestic biodiesel consumption.
Golden Agri, which sells about a quarter of its palm output to Indonesian buyers while exporting the rest, has made big downstream investments in Indonesia in recent years.
"At the moment we are constructing our first biodiesel plant in Kalimantan," said Concepcion, adding that Golden Agri would also continue to look at ways to grow its palm hectarage.
"In the upstream, we are keen to do M&A but at the right price," said Concepcion. "It's just the absence of opportunities. The industry, although a bit up and down in terms of CPO price, continues to be profitable."
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