Daily TribuneAMPI expects an increase of around 2,500 to 5,000 hectares in palm oil cultivation in the Philippines, which would be a much-needed progression to address the underutilization of our palm oil manufacturers who are only currently operating at 65 percent capacity
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Food manufacturer Monde Nissin Corp. (Monde) and D&L Industries Inc. (DNL) are expected as chief beneficiaries in sales volume growth, coupled with margin expansion in the coming quarters on the back of the local palm oil industry’s development, as well as expectations that inflation will remain moderate, which should translate to pick-up in demand.
Brokerage and market analysis firm AP Securities indicated that at the recently concluded National Palm Oil Congress in Davao City, Ares Merchants Philippines Inc. (AMPI), a leading supplier of vegetable oils, expressed optimism about the industry’s expansion.
AMPI expects an increase of around 2,500 to 5,000 hectares in palm oil cultivation in the Philippines, which would be a much-needed progression to address the underutilization of our palm oil manufacturers who are only currently operating at 65 percent capacity.
“We note that the Philippines is currently only producing around 104,000 metric tons (MT) of palm oil which translated to eight percent of the total palm oil demand of roughly 1.25-million MT in 2022, which led to the need to import the remaining 92 percent or 1.15-million MT.
Even if the 5,000-hectares annual increase in palm oil cultivation forecasted by AMPI materializes, it will only translate to an 8,000 MT increase in local supply per year, or 0.6 percent of the local demand. The local supply shortfall underscores the massive potential for the industry’s growth in the future.
Subdued prices support higher margins
The growth of the local palm oil industry would be a positive for companies that utilize palm oil as one of their key commodity inputs for production.
A larger domestic palm oil industry would essentially mean that Monde would have a lesser need to lock-in prices as they would have access to local supply.
Another company that uses palm oil as a key input is DNL. “We note that their margins posted substantial declines during the surge of palm oil and coconut oil prices from 2019 to 2022 with 2Q19 gross profit margin (GPM) of 22.5 percent taking a nosedive to 11.1 percent by the fourth quarter 2021. The decline in palm oil prices beginning 2022 however, has helped the company expand its margins once more, rising by 420 basis points (bps) in the second quarter as a result of lower costs,” AP Securities stressed.
