Illegal shipments, weaker consumer income affecting sales
Company says there isn’t enough demand to absorb current glut
Okomu Oil Palm Plc, Nigeria’s second-largest producer of palm oil, expects its sales will probably slow for the rest of the year due to a supply glut and weak consumer demand.
There’s a surge of illegal shipments from neighbouring West African countries in recent months contributing to the oversupply of the domestic market, Okomu Chief Executive Officer Graham Hefer said in a Feb. 12 telephone interview. There are fears the situation may get worse if the government gives import waivers “to some people for political reasons” ahead of 2019 general elections, as happened in the past, he said.
Nigeria’s central bank in 2015 stopped importers of 41 items, including palm oil, from getting the foreign exchange from official channels. That helped to support local producers and conserve dollars after the price of crude, the nation’s major revenue earner, plunged in mid-2014. The measure was a boon to Okomu as its revenue surged 47 percent and profit rose 85 percent in 2016.
While the restriction remains, palm-oil shipments increased last year as importers gained more access to foreign exchange following a new trading window introduced by the central bank for investors. There hasn’t been enough demand to absorb all that supply as Nigeria recovers from its worst economic slump in 25 years, Hefer said.
“We hope that the bottom line will be more or less in line with what we had before because we are closely monitoring our costs,” Hefer said. “We make sure we find the cheapest supplier in the market and that which can give us the best quality and the best returns on input.”
Okomu, which currently mills 30 metric tons of palm oil per hour, plans to double its capacity by 2020 on the completion of a $50 million plant, he said. The company operates 33,000 hectares (82,000 acres) of oil palm and rubber trees, according to its website.
With a drop in demand for rubber from China, Okomu is seeking new markets in other countries, Hefer said, without identifying the targeted markets. The company sells palm oil locally and exports rubber.