Wilmar International turns more cautious on oilseed & grain division

The group flagged that oilseeds &grains may only breakeven in FY12 if operating conditions nin China do not improve.

CIMB reports that at its 4Q11 results briefing, Wilmar guided that oilseed&grain margins will remain suboptimalasit expectsoperating conditionsin China to remain toughin 2012 fromovercapacity.

It is more upbeat on its palm & laurics division as it expects its Indonesian refineriesto book higher profit marginsfollowingrecent changes in the country’s export tax for palm products.Refining margins outside Indonesia have also improved in 1Q12against 4Q11.

The group willbe raising its Indonesian refining capacity by 50% in2Q-3Q12, tohelpboost refining margins. Current refining capacityin Indonesia isaround7m tonnes, or 30% of the group’s globalrefining capacity.

CIMB however notes that it becomes more pessimistic after the briefing as the group flagged that oilseeds &grains may only brea kevenin FY12if operating conditions do not improve or it is unable to purchase feedstockbetter than its peers. “This division made up 20% of FY11 pretax profit.The compensatingfactor could be qoq improvements in refining margins. We also expect consumer products to fare better with the aid of higher selling prices for cooking oils in China.Sugar earnings should, moreover,improve from higher production,” she said.

What went wrong in 4Q11?

Demandwasgenerallyweak in 4Q due to the euro debt crisis and uncertain global economies. This affectedthegroup’s bargaining power, says CIMB noting that the group also scaled back its trading and risk exposure to avoid customer defaultsor bad debts, leading to lower trading profits. As such, oilseeds&grains as well as palm& laurics profit marginswere affected.

The group’s Indonesian refineries havebeen benefitting from Indonesian export tax changes in Oct 11 and were able to chalk up US$60-70/tonne profit marginsfor refined palm oil exportedand US$30-40/tonneprofitsfor domestic cooking oil in Indonesia. Out of the 1.4m-1.5m tonnes of palm oilrefined in Indonesia during the quarter, around 20% was soldto the local market. Despite the better refining margins in Indonesia,overall refining margins were not higherqoq due to low-to-negative refining margins in Malaysia, China, India and Europe, said CIMB. Overallrefining margins in fact fell qoq to US$20.30per tonnein 4Q from US$29 in 3Q11. Oilseed&grain earnings were down98%qoqto US$1.7m in 4Q.