Palm Oil Sector in 2019: A long or short reprieve?

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2018 was largely a challenging year for oil palm players as local FX liquidity,  declines in global Crude Palm Oil (CPO) price and a continued porous border, encouraged the smuggling and importation of CPO. Thus, listed players on the Exchange (OKOMUOIL and PRESCO), struggled to grow their revenue. In 9M-18, OKOMUOIL posted a meagre 0.5%y/y growth in revenue while PRESCO lagged, recording a 4.0%y/y decline.
Looking into 2019, we expect players to continue to benefit from favourable government policies and cheaper loans. Thus, we see room for further production expansion. On the other hand, the outlook for global CPO price is relatively favourable for the local players as droughts recorded in key producing areas in Indonesia and Malaysia in H2-18, are expected to drag global supply.
Furthermore, anticipated increases in demand from India – one of the largest consumers of CPO – is expected to
buoy prices higher, predicated by a reduction in import duties for CPO in India. However, an expected EU (world’s second largest palm oil importer) ban on palm oil by 2030, under the Renewable Energy Directive (RED), posts a gloomy future for exporters in the long term, as palm oil is a major feedstock for biofuels.
Overall, we see slightly higher global CPO prices in 2019. We also expect this to translate to local prices, as the expected slight depreciation of the naira in 2019 should make CPO imports a little less attractive.
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