Golden Agri's CPO production to dry up by 15-20% in H2

Yields may need over another year to normalise.

It's going to be tough going for Golden Agri Resources (Golden Agri) in the second half of 2016, as crude palm oil (CPO) production will likely continue to disappoint in the second half of 2016.

According to a report by OCBC, this would extend its 24% YoY slump from H1. Golden Agri anticipates production to wither further by some 15-20% for 2016, versus its earlier guidance of a 10-15% drop.

"According to management, the yields are only expected to normalize by 2Q or 3Q of 2017," stated OCBC.

On the other hand, CPO prices seem to have plateaued at around $700/ton. While replenishing stock in H2 should keep prices propped up, Golden Agri does not expect prices to return to US$800-900 levels any time soon.

Nevertheless, Golden Agri holds firm that it can achieve improved performance in H2, bolstered by possible La Nina conditions and further implementation of Indonesia's biodiesel mandate.