Agri players' profits dry up on back of unrelenting supply glut

CPO prices will slip further in Q3.

Listed plantation companies were parched for profit in the second quarter, but their woes are far from over on back of persistently depressed crude palm oil prices.

According to CIMB, CPO prices are expected to trend lower in the third quarter, compounding several months of price declines. The contraction will be driven by high soybean stocks, rising palm oil inventory and weak demand.

“The 2Q results of the planters were broadly in line with our forecasts but below consensus estimates, due to weaker CPO price and in some cases, lower output. Slower palm oil output growth and a potential El Nino bode well for prices next year. However, this is more than offset by weaker demand in the near term and rising stockpiles,” CIMB said.

“We are concerned about overcapacity issues in the refining industry in Malaysia and Indonesia, the imposition of additional CPO levy (effective 15 July 2015) and the changes in accounting for biological assets, which is negative for FY16 earnings of Singapore planters as it will result in higher depreciation charges,” the report added.