KUALA LUMPUR: The local palm oil sector is poised to begin its recovery in the second half (2H) of 2020 following the easing of Covid-19 lockdowns globally.
This would in turn improve global demand from major consumers particularly China and India, said Boustead Plantations Bhd chief executive officer Ibrahim Abdul Majid.
The upstream oil palm plantation company predicted that stockpiles will dwindle in anticipation of better demand for edible oil in the global food supply chain.
"For the short-term, the sector is expected to remain impacted, we continue to adopt a longer-term view given the nature of our industry," Ibrahim told the New Straits Times.
He is also optimistic for the year ahead given the crude palm oil (CPO) export tax exemption aimed at managing Malaysia's stock level, which has to a certain extent lifted prices.
Ibrahim said Indian buyers had resumed purchasing Malaysian palm oil after a four-month gap following a diplomatic row, with buying spurred by a fall in domestic inventories and discounted prices.
"Even though the short-term prospects for the plantation sector are weak given the current environment, we are optimistic that prospects will improve as the world sees a gradual recovery," he added.
Ibrahim said the Malaysian Palm Oil Council's (MPOC) had forecast CPO prices to hit a peak of RM2,594 per tonne in 2H, and this would improve Boustead Plantations' bottom line.
"We expect to see enhanced fresh fruit bunches (FFB) production in 2020, due to the full-year consolidation of production from Tawai estates.
"At the same time, harvesters' productivity which is addressed via our Transformation Programme is also expected to have a positive impact on FFB production," he said.
Ibrahim said the company expected its average CPO price for 2020 to be in the range of RM2,400 to RM2,500, benefitting from the palm oil export tax exemption from July until December this year under the National Economic Recovery Plan and significant recovery in global palm oil demand from May.
"Demand is expected to be a key factor in determining prospects for CPO in 2020 and 2021."
He added that the lingering effects of the Covid-19 crisis was likely to curtail disposable income particularly in relation to food in developing countries.
This, in turn may curb the prospective uptrend in world consumption of oils and fats.
"We expect the large demand losses stemming from the lockdowns in the first-half of 2020 to be recouped by next year.
"Overall, this forecast is based on the assumption that the Covid-19 pandemic comes under reasonable control soon."
Ibrahim, however, said if the pandemic did not come under control, this would put another round of downward pressure on all major commodities.