Palm oil producer Sampoerna Agro sees output climbing as much as 8 percent this year from 289,000 tonnes in 2010, while planting will jump by at least 10 percent, an official from the Indonesian firm said on Friday. A combination of maturing plantations and improvement works to surrounding rivers to fight flooding, have combined to help boost production, Michael Kesuma, head of investor relations told Reuters.
"This year we are targeting to grow 5-8 percent," Kesuma said. "In the first part of 2009, there was a lot of rainfall in South Sumatra... after that incident we analysed why it flooded." "The main source of the problem was the rivers flowing nearby or through our estates," he added. "So we re-dug those rivers, in addition to improving the water draining systems."
Palm oil prices have gained around 30 percent in the last 12 months, on concerns that seasonally heavy rains had stalled harvesting in top producers Indonesia and Malaysia. "We were more or less ready for it," said Kesuma. "Of course we're also helped by a maturing age profile." Sampoerna Agro, which listed on the Jakarta stock exchange in 2007, currently has about 102,000 hectares (252,000 acres) either managed or under its guidance, mainly in South Sumatra.
"The management set a target starting last year, developing 50,000 hectares in five years," he said. "This year we think we should try to plant at least 10,000. Right now we are also developing West Kalimantan." Sampoerna Agro, part of the Sampoerna Group, which has business interests ranging from telecoms to plantations, is a member of the Roundtable on Sustainable Palm Oil (RSPO), an industry body of consumers, green groups and plantation firms that aims to promote growth and use of sustainable oil palm products. "At the moment we have a pilot project, which consists of two estates and one mill in South Sumatra, that has already started the (sustainable) certification process," said Kesuma. "Others should follow.
PRICE IS RIGHT Malaysian palm oil futures hit a two-week low earlier this week, but has since steadied around 3,300 Malaysian ringgit ($1,091) per tonne. Many analysts see further downward price pressure in the second half, as palm oil moves into a higher output cycle.
"A lot of experts are talking about the threat of a supply spike this year," said Kesuma, whose firm first began planting palm oil more than 20 years ago. "For Sampoerna Agro, there is not a fixed one-year cycle trend of production. "No matter what, this year's production should be higher than last year's - that's always been the case for Indonesia."
Southeast Asia's biggest economy, which is seen producing 21-23 million tonnes of palm oil this year, outstripped Malaysia as the top palm oil producer in 2007. Last year, Sampoerna Agro sold about 90 percent of its palm oil to Indonesian buyers.
"Today's price, even though it has been going down since the start of the year, is still a good price (and) we're making nice margins," said Kesuma. He sees population growth and rising biodiesel demand due to volatile crude oil prices, as supporting factors for prices.
Although palm oil is less likely to be channeled into biofuels because of a lack of government subsidies, mandates in Brazil and the United States may see more soyoil taken up, which leaves palm oil to lead the food sector. "As long there is a threat to the production of crude oil in the form of the Middle East crises, there is always the potential upside to the CPO price," said Kesuma. In late January, Mandiri Investasi, the asset management arm of Indonesia's Bank Mandiri , said it saw a 25 percent upside to the palm oil price in 2011, with a top pick being Sampoerna Agro.