THE implementation of various standard operating procedures (SOP) to curb a spike in COVID-19 cases have become a bane to Sabah’s palm oil industry.
CGS-CIMB Research expects the implementation of such SOPs will lead to lower productivity (fresh fruit bunches yield) from Sabah estates as harvesters deployed to the estates would be halved, which in turn leads to lower utilisation rate at the downstream facilities.
Last Tuesday, the Sabah state government announced that businesses in the oil palm sector have to halve their workforce if they employ over 10 workers.
In addition, working time will be limited to 12 hours daily (from 6am to 6pm) throughout the oil palm supply chain in Sabah.
“… the potential impact from a 50% reduction in workforce during this period could be up to 50,000-62,500 tonnes of crude palm oil (CPO) per week or potential loss in CPO revenue of RM152 mil-RM190 mil per week based on current CPO price of RM3,049 per tonne.,” wrote research head Ivy Ng Lee Fang in an agribusiness sector update.
The estimation is based on the fact that Sabah produced 5 mil tonnes of CPO (25% of Malaysia’s total output) in 2019 with 25% of the year’s output – on average 100,000-125,000 tonnes of CPO per week – captured in the final quarter of that year.
“This would be a huge opportunity loss for Sabah’s palm oil industry while benefiting planters with estate exposure outside Sabah as they will stand to enjoy the high CPO price without the SOP constraints,” lamented Ng.
Planters under CGS-CIMB Research’s radar with highest exposure to Sabah are Hap Seng Plantations Holdings Bhd (100%), IOI Corp Bhd (68%), FGV Holdings Bhd (33%), Genting Plantations Bhd (27%) and Kuala Lumpur Kepong Bhd (18%).
“However, the lost in production could be partly compensated by better CPO prices,” added Ng.
The Malaysian Estate Owners Association (MEOA) is currently appealing to the Sabah state government to review the SOPs given the 12-hour window on mill operations is insufficient as milling operations require daily start-ups and shutdowns that will inevitably eat into the allotted time. – Oct 27, 2020
