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 Mahamad Rodzi Abdul Ghani
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 Oil palm industry feeling the pinch of low prices

Oil palm industry feeling the pinch of low prices

Monday, 26 February 2001 : Oil palm plantation companies may be in a roughpatch at present caused by the extended bad commodity price but many ofthem still manage to avoid being in the red.

United Plantations Bhd senior executive director Tan Sri Bek Nielsen saidalthough the company is feeling the pinch, it has managed to ward offlosses due to its aggressive replanting policy adopted for the last 15years.

"It is no secret that a lot of people will be hurt by the current lowprices but we are fortunate enough not to have recorded any losses butonly a reduced profit margin," he told Business Times

Nielsen said he feels most for the hardships faced by the smallholders whocannot even make ends meet by getting back the money they had put in andare in a precarious situation.

He said it is unfortunate that the dry months of January to March whichshould be low production months for palm oil had turned out to beotherwise, resulting in over-production and had put tremendous pressure onthe smallholders.

"Fortunately for us, our aggressive replanting scheme practised over thelast 15 years has somehow managed to pull us through," he added.

United Plantations has over 36,500ha of plantation area nationwide.

It recorded a pre-tax profit of RM37.345 million during its last financialyear which ended on September 2000 compared to RM91.366 million in thecorresponding period in 1999.

Meanwhile, Golden Hope Plantations Bhd chairman Tan Sri Datuk Dr AhmadSarji Abdul Hamid said the company will be concentrating more onagro-forestry and herbal products as its long-term profit generator.

"No doubt, the low palm oil prices have a somewhat direct impact on ourearnings but our property division has managed to offset the losses due tomore strategic locations, high demand for houses and more competitivepricing," he said.

He said the company will reduce its dependency on oil palm plantationswhich currently encompass 80 per cent of its core activities.

The company had earlier this month signed a memorandum of understandingwith the Forest Reserve Institute of Malaysia (Frim) to work together inareas of research and development, marketing and selling, and has alsoembarked on planting a more diverse array of crops.

The company has conducted pilot projects at its 10-ha plot of land inPulau Carey in Selangor and parts of its 160,000ha plantation estatesnationwide.

These projects have shown promising results.

Golden Hope Plantations Bhd recorded a pre-tax profit of RM37.318 millionduring its last financial year ending September 30 2000 compared withRM100.291 million in the corresponding period in 1999.

Kim Loong Resources Bhd managing director Gooi Seong Lim said the companyhas not suffered much due to its position mainly as a miller, making itless susceptible to fluctuating prices.

"Regardless of the fluctuating prices of palm oil, our company's earningsare not much affected by prices because we earn our money through a fixedrate in processing," he said.

Furthermore, only 30 per cent of the company's operations are concentratedon plantations of around 11,337ha which are mainly located in Sabah.

"The trees have yet to mature, thus saving the company from the currentlow price crisis," he said.

Meanwhile, an analyst concurred, saying that most of the plantationcompanies are generally doing well with most of them still in the blackbut recording marginally profitable incomes.

The analyst said that for example, IOI Corp, Malaysia's third largestpublicly traded oil palm plantation concern, had, on February 15, releasedits second quarter results, recording a 19 per cent drop in profit toRM61.6 million due to the lower palm oil prices.

"But the losses have been offset by its property development unit, IOIProperties Bhd which posted a 9.6 per cent rise in profit to RM31.69million," he said.

"With the exception of Kumpulan Guthrie Bhd which will suffer losses dueto a high ratio of old estates, other companies should be able to survive.

"And they should adopt a more aggressive stance in replanting and costcutting measures such as reducing the use of fertilisers," the analystsaid.

The analyst said it is a tough time for all plantation companies and thatit is hard to predict what the situation will be in the next two or threemonths, adding that the industry will have to wait and see.


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