PETALING JAYA: Plantation operations are expected to be affected by lower exports and prices in the coming months given disruption in the global palm oil supply chain led by the Covid-19 pandemic.
With many countries on a lockdown mode, AllianceDBS said in its latest report that the situation is expected to affect the flow of goods in and out of the country.
It noted that the local palm oil export numbers for February have already shown a steep decline.
“We expect a steep decline in the export numbers for March and also anticipate the low exports numbers to persist if the proliferation of the virus is not controlled.
“In fact, we expect March export numbers to be one of the lowest in more than 15 years, ” the research unit pointed out.
Palm oil exports has depreciated 10.81% to 1.08 million tonnes in February from 1.21 million tonnes in January, according to the Malaysian Palm Oil Board.
However, the fall in exports has been partially mitigated by lower production yields as a result of trees going through its resting period and the haze and El-Nino, which happened in late third quarter of 2019.
AllianceDBS also believed that “the current crisis is different from the past as palm oil demand does not typically fall during a recession.” Palm oil is an essential food product and its projected fall in demand is mainly due to current movement restrictions globally due to Covid-19.
“Despite our long-term positive view on crude palm oil (CPO) prices, we believe that the threat of a prolonged Covid-19 outbreak could derail CPO’s recovery in the near term as continued movement restrictions would keep exports lower for longer, ” it added.
On the restricted movement order by the government, the research unit expected it to have a minimal impact on plantation players.
The National Security Council has issued a notice that the plantation sector is considered as an essential service and will continue to operate without disruptions.
AllianceDBS said: “We expect a V-shaped recovery for palm oil prices when the virus dissipates as palm oil supply is expected to remain constant.”
On another note, the current weak crude oil prices would continue to be a drag on CPO prices, said the research unit.
This could pose a huge risk on the biodiesel mandate by Malaysia and Indonesia as the palm oil-gas oil spread is widening making palm oil currently not financially feasible to be used as an feedstock for biofuel.