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Moody’s sees growing CPO demand in medium, long term
Moody's Investors Service says crude palm oil (CPO) prices — which have fallen 14 percent since the start of 2018 and are at their lowest levels since 2015, will present a credit challenge for rated palm oil producers if they remain at current levels
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A worker checks freshly harvested oil palm fruit loaded onto a truck in Pangkalan Bun, East Kalimantan. (JP/Dhoni Setiawan)
M
oody's Investors Service says crude palm oil (CPO) prices — which have fallen 14 percent since the start of 2018 and are at their lowest levels since 2015, will present a credit challenge for rated palm oil producers if they remain at current levels.
"Continued weak CPO prices will challenge the credit metrics of the four palm oil companies that we rate over the next 12-18 months, but the growing demand for palm oil will support their credit profiles over the medium to long term," said Moody’s analyst Maisam Hasnain in a statement on Thursday.
"We also expect the governments of Indonesia and Malaysia — which together produce around 85 percent of CPO globally — to maintain supportive policies toward their respective palm oil industries and this will continue to provide a valuable underpinning for ratings in the sector," adds Hasnain.
Moody's analysis is contained in its just-released report titled Palm oil— Asia: Credit quality at risk if CPO price remains at current low point in price cycle, co-authored by Hasnain and Diana Beketova, a Moody's associate analyst.
Moody's report identifies three key risks that could hurt the revenue and earnings of palm oil producers over the next 12-18 months.
First, on the supply side, growing levels of palm oil inventories in Malaysia and Indonesia could further weaken the selling prices of CPO.
Second, on the demand side, additional tariffs and restrictions placed by the largest CPO-importing countries would weaken demand. And third, weaker soybean oil prices could pressure CPO selling prices. (bbn)
