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ASSESSING 2022: MANAGING OPPORTUNITIES AND RISKS:
Rising Production Cost and Labour Crunch Impact on Palm Oil Industry
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By: Ms. Ivy Ng
Ivy Ng is currently the Regional Head of Plantations and Head of Malaysia Research in CIMB. She is a CFA charterholder and holds a BSc in Economics from the London School of Economics. She has been covering the palm oil sector since the mid-90s and expanded her coverage to include the regional palm oil companies since 2005.
She joined CIMB in 2005 and currently covers regional plantations and conglomerates. Ivy has been an investment analyst since 1994, with prior stints in Affin-UOB, Peregrine Research, Hwang-DBS Securities and GK Goh Research.
Ivy was ranked number one by Asiamoney polls in the Malaysian industrial sector in 2014 to 2016 and utilities sector in 2007 and 2008. She was also voted Malaysia’s best power analyst in 2007 and best plantation analyst in 2008 by The Edge. 
VIEW PROFILE
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The presentation will explore the costs of production of selected listed palm oil players and how they have trended historically. We will also look at the labour shortage issue in Malaysia and how this has affected the industry's costs competitiveness. Lastly, we will provide a quick update on the key price-making factors for CPO for the rest of 2022.
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ASSESSING 2022: MANAGING OPPORTUNITIES AND RISKS |
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Archives |
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MITIGATING THE NEXT WAVE OF MARKET UNCERTAINTIES Nov 14, '22 ~ Nov 18, '22 |
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ASSESSING 2022: MANAGING OPPORTUNITIES AND RISKS Mar 28, '22 ~ Apr 01, '22 |
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Section 2: Opportunities for Palm Oil in Asian Market Oct 18, '21 ~ Oct 24, '21 |
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Section 1: Oils & Fats Supply, Demand and Outlook Oct 18, '21 ~ Oct 24, '21 |
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Section 1: Price Direction Apr 05, '21 ~ Apr 11, '21 |
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Section 2 : Special Focus on the US Apr 05, '21 ~ Apr 11, '21 |
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POINTERS ON THE PRICE TRENDS Jun 22, '20 ~ Jun 28, '20 |
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Section 1 : CPO Price Trend Feb 24, '20 ~ Mar 01, '20 |
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Section 2: Global Palm Oil Market Opportunities Feb 24, '20 ~ Mar 01, '20 |
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Section 2: Special Focus Aug 19, '19 ~ Aug 25, '19 |
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Section 1 : CPO Price Trend Aug 19, '19 ~ Aug 25, '19 |
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Special Focus - India Feb 25, '19 ~ Feb 24, '19 |
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Section 1: CPO Price Trend Feb 18, '19 ~ Feb 24, '19 |
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Section 2: Global Palm Oil Market Focus Aug 06, '18 ~ Aug 12, '18 |
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Section 1: CPO Price Trend Aug 06, '18 ~ Aug 12, '18 |
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Section 2 : Global Palm Oil Market Focus Jan 29, '18 ~ Feb 04, '18 |
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Section 1: CPO Price Trend Jan 29, '18 ~ Feb 04, '18 |
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Section 2: Regional Focus : CIS Countries Aug 21, '17 ~ Aug 27, '17 |
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Section 1: Palm Oil Price Fundamentals Aug 21, '17 ~ Aug 27, '17 |
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Section 2: Market Challenges and Opportunities Feb 20, '17 ~ Feb 26, '17 |
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Section 1: Price Directions Feb 20, '17 ~ Feb 26, '17 |
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Section 1 : Palm Oil Price Fundamentals Aug 22, '16 ~ Aug 28, '16 |
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Section 2 : Trade Issues and Market Prospects Aug 22, '16 ~ Aug 28, '16 |
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2016 Market Direction - Twists and Turns of Palm Oil Prices Feb 22, '16 ~ Feb 29, '16 |
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Second Half 2015 - Anticipating Market Price Direction Aug 17, '15 ~ Aug 23, '15 |
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Special Focus: Indian Sub-Continent Aug 17, '15 ~ Aug 23, '15 |
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Opportunities, Challenges And Trend In 2015 CPO Price Feb 23, '15 ~ Mar 01, '15 |
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2nd Half 2014: Market Challenges, Predictions And Directions Aug 25, '14 ~ Aug 31, '14 |
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Anticipating 2014 Palm Oil Price Direction Feb 17, '14 ~ Feb 24, '14 |
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Prospects For Second Half Of 2013 - Managing Price Fluctuations Jul 22, '13 ~ Jul 29, '13 |
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Mapping The Palm Oil Price - 2013 Market Perspective Feb 18, '13 ~ Feb 27, '13 |
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Palm Oil : Challenges, Opportunities And Latest Market Directions Aug 06, '12 ~ Aug 17, '12 |
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2012 Price Direction, Issues & Challenges Feb 13, '12 ~ Feb 20, '12 |
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Challenges, Opportunities And Latest Price Trend Aug 08, '11 ~ Aug 16, '11 |
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Challenges, Opportunities And Price Direction Feb 07, '11 ~ Feb 17, '11 |
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2010 Year End Prospects - What Lies Ahead? Aug 02, '10 ~ Aug 08, '10 |
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Dear Wong YQ, I agree that for smallholders they may not have the knowledge, resources and scale to adopt mechanisation vs. big planters. However, one way to encourage adoption may be to explore the possibility of having more organised smallholders plantation to obtain economies of scale to explore investing in mechanisation. This will be a win-win for smallholders and the industry.
2 years ago
Dear Choon Seng, 1) My understanding is that it could raise production costs by as much as 10% or more depending on the base cost of production 2) At current high CPO price, affordability is not an issue. As such we expect smallholders to continue to apply fertilisers. The key obstacles may be supply chain issue - delay in receiving fertilisers on a timely basis due to geo-political risks or shortages
2 years ago
Dear Megat, The domestic cooking oil price (palm oil only) in the country is currently subsidised by the government. As such, domestic consumers are not bearing the full impact of the rising palm oil prices. An alternative way is to provide more targeted instead of blanket cooking oil subsidy to all the consumers.
2 years ago
Dear William. Thanks for the queries. Most large plantation companies are aware of the ESG risks and have appointed various third party assessors to conduct assessments on their labour practices. My understanding is that companies affected by forced labour allegations will be taking additional measures to ensure the labour recruitment process is thorough. It will be harder to inspect labour at plantation estates due to wider geographical spreads compared to glove makers. To ensure best practices are applied, proper process, grievances channels, audit and constant engagement with regulators will be required for plantation companies.
2 years ago
Dear Hooi Peng, For upstream players, the difference between costs and ASP depending on ASP assumptions will be the profit for the oil palm owner after deducting HQ costs, corporate tax to government. We have worked out the % of taxes due to the government for planters (excluding corporate income tax) in the slides. The amount of tax the company pay will depend on CPO price and profitability. The costs of production will be mostly workers salary, fertilisers and fuel.
2 years ago
Dear Loy Fatt, The computation of costs exclude PK credits and other by-products. To add PK credit, need to establish PK yield of the estates multiply by PK price and deduct from the costs accordingly. The figure will vary depending on the PK price assumption. The industry uses multiple ways to compute costs of production. For the purpose of this paper, we have assumed costs of production per mature ha of around RM7,032 per ha divided by the CPO yield of the estates in the particular region to arrive at the cost per tonne for CPO.
2 years ago
Dear George, Apart from labour issues, other key factors impacting yields will be soil type, terrain, weather, age profile, management of estates. Also, Sarawak started plantings later than the other regions and incurred higher new planting costs.
2 years ago
Dear Ceanry, The labour crunch issue will have direct impact on Malaysian palm oil players and can be partially resolved if foreign workers are allowed to be recruited. The Ukraine-Russia conflict will have an indirect impact on Malaysian palm oil players via the opportunity to expand their market for palm oil, if they have enough workers to maximise their production.
2 years ago