SIPEF : Interim statement of the Sipef group (9m/2020) ( EN NL )

Press Release

Regulated information

The connection to the world of sustainable tropical agriculture

Interim statement of the SIPEF group

as per 30 September 2020 (9m/20)

• So far, Covid-19 has had no significant direct negative financial impact on the operational activities of the SIPEF group, except for the effect of a sudden sharp drop in the price of palm oil in the second quarter.
• The total palm oil production of the Group grew by 5.3% compared to the first nine months of last year; this growth should continue in the fourth quarter.
• On the Indonesian estates a favourable precipitation pattern in the third quarter mitigated the expected negative impact of the drought of mid-2019.
• In Papua New Guinea, the recovery from volcanic eruptions is progressing favourably; a 48.4% increase in own fruit production was already recorded in the third quarter compared to the catastrophic third quarter of 2019.
• Demand for palm oil, both for food and biodiesel applications, remained strong in the third quarter with a price recovery to levels above USD 700 per tonne CIF Rotterdam as a result.
• To date, the Group has sold 94% of the expected palm oil production for 2020 at an average price of USD 703 per tonne CIF Rotterdam equivalent, premiums included.
• Based on these sales and recent market conditions, SIPEF expects a return to profit, with a recurring consolidated result after tax which is anticipated to be between USD 10 and 15 million at year end.
• The investment programs related to the expansion in South Sumatra, Indonesia, continued steadily with an increase in Musi Rawas from 1 340 cultivated hectares to a total area of 13 543 hectares by the end of September 2020. In addition, 4 210 hectares have already been replanted in the nearby Dendymarker plantation.

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1. Group production

Group production
2020 (in tonnes)	Own	Third	Q3/20	YoY%	Own	Third	YTD	YoY%
		parties				parties	Q3/20
Palm oil	72 011	12 648	84 659	4.76%	202 905	44 122	247 027	5.34%
Rubber	1 170	192	1 362	-7.47%	3 957	451	4 408	-8.85%
Tea	500	19	519	15.85%	1 978	19	1 997	13.47%
Bananas	7 636	0	7 636	1.03%	23 805	0	23 805	-1.98%
2019 (in tonnes)	Own	Third	Q3/19		Own	Third	YTD
		parties				parties	Q3/19

Palm oil	70 976	9 833	80 809	199 054	35 451	234 505
Rubber	1 233	239	1 472	4 301	535	4 836
Tea	448	0	448	1 760	0	1 760
Bananas	7 558	0	7 558	24 286	0	24 286

Coronavirus has had no significant impact on the Group's productions, despite the continuing pressure of the virus on the daily management of plantations and mills in all countries and activities in which SIPEF is present.

The expected delayed negative impact of the drought in the middle of last year on the production of the third quarter of 2020 was mitigated by a very uniform precipitation pattern in most plantations in Indonesia. Indeed, such a pattern favours the vegetative development of the palms and supports fruit production.

As usual, volumes of fruit and oil increased in all plantations in the third quarter, compared to the two previous trimesters. However, this was not the case for the older plantations at Agro Muko in Bengkulu, where the impact of the drought of the middle of last year was felt the most.

Compared to the third quarter of last year, harvests in the mature plantations in North Sumatra also remained sub-standard(-5.5%) due to this drought. The temporary decrease in fruit production volumes in South Sumatra in comparison with the third quarter of last year (-3.4%), was the direct result of the accelerated replanting of the old Dendymarker plantations. After all, the growing harvests on the young plantations in Musi Rawas could not yet match the production level of the replaced old plantations.

In the mature plantations of UMW/TUM in North Sumatra, production again increased against the previous two quarters and compared to the third quarter last year (+11.1%). This is encouraging, all the more so because for two years in a row the bunch weights of these plantations had dropped because of an imbalance in fertilisation.

Due to the even and abundant precipitation compared to the 10-year average, the oil extraction rates (OER) at the Sumatra mills are generally slightly lower than last year. An exception is the Dendymarker mills in South Sumatra, where the supply of high-quality fruits from Musi Rawas is gradually replacing the low-oil fruits from the old Dendymarker plantations. Due to the lower extraction rates, the 3.4% growth in own fruit harvest volumes in the first nine months of the year is not fully reflected in the oil volumes produced. These increased by 1.8% compared to the same period last year.

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In Hargy Oil Palms in Papua New Guinea, its own production areas are still recovering from last year's three volcanic eruptions. Approximately 3 000 hectares still produce significantly lower volumes of fruit. Compared to the catastrophic production volumes of the third quarter of last year, an increase of 48.4% has now been recorded. However, the annual volume is still 3.3% lower than that of the first nine months of 2019.

Smallholders have suffered less from ash precipitation due to the location of their plantations. As a result, they were able to offer higher fruit volumes for both the third quarter (+22.0%) and the full nine months (+16.2%) for processing in the Group's three mills there.

The normalised weather pattern in Papua New Guinea enabled the Group to return to the favourable extraction rates of 24.4% for the first nine months of the year, compared to 23.0% last year. As a result, the volume of oil produced increased by 11.3%, which is reasonably higher than the growth of the fruits supplied (+4.7%).

The Group's total palm oil production grew by 4.8% and 5.3% respectively, compared to the third quarter and the first nine months of last year.

The favourable weather pattern ensured that, percentage wise, the own rubber production in North and South Sumatra did not deteriorate further in the third quarter of 2020. Nevertheless, the Group's annual production over the first nine months decreased by 8.9%. This is mainly due to the Pestalotiopsis fungus, which continues to disrupt rubber activities in Southeast Asia, affecting this year's production mainly in Bengkulu province (-23.6%).

Tea production in Cibuni, on the island of Java, including recent purchases from smallholders, showed continued growth in both the third quarter (+15.9%) and the first nine months of the year (+13.5%). This was due to a favourable precipitation pattern, fully in line with the 10-year average.

In Ivory Coast, the slowdown in the ripening process in the second quarter, led to a 1.0% increase in banana production volume in the third quarter, compared to the same period last year. However, on an annual basis, production still remains 2.0% lower than the first nine months of last year. This reduction is mainly due to the gradual decline in the first high yields of the most recently planted Azaguié 2 plantation, which is now evolving to a normal replanting rate.

2. Markets

Average market prices

		YTD Q3/20		YTD Q3/19		YTD Q4/19
In USD/tonne
Palm oil	CIF Rotterdam*	666		530		566
Rubber	RSS3 FOB Singapore**	1 547		1 672		1 640
Tea	Mombasa**	2 017		2 211		2 226
Bananas	CFR Europe***	643		662		662

* Oil World Price Data

**World Bank Commodity Price Data (updated database)

*** CIRAD Price Data ( in EUR)

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The third quarter was dominated by good palm oil exports, with consuming countries replenishing stocks after the coronavirus lockdown. Malaysian palm oil production peaked in June this year, and stayed quite flat during all months of the third quarter, and due to good exports, the stocks stayed around 1.7 million tonnes. The stocks-to-use ratio implied there were less than four weeks of stocks in the tanks in Malaysia, and there has therefore been an inverted price market. Also, Indonesian production remained below its usual yield pattern and could not bring any relief.

China remained a strong buyer, not only of palm oil but across the agricultural commodities, restocking after the lockdown where the economy is recovering strongly. India was also a big importer, but more hand-to- mouth; they were certainly looking forward to the upcoming festive season. In general, demand was really good from most importing countries.

In addition, Indonesian domestic consumption remained strong, and the biodiesel volumes to fulfil the B30 blending program stayed at par. There is quite some debate about who will finance the gap between palm oil and gasoil to justify such blending, and the export levy was already increased by 10%, but the government seems to be determined to keep the blending target at B30.

A considerable amount of strength in the palm oil market was borrowed from sunflower oil, where significant yield reductions led to a very tight oil picture. Some big sunflower oil importers switched to other oils, from which palm oil certainly benefited. On top of that, the soybean complex has tightened as well, due to very strong imports from China. Latin America is virtually sold out and now the world depends on US soybean availability.

The price of palm oil rallied strongly from USD 585 per tonne at the beginning of July to USD 770 per tonne by mid-September, before closing the quarter at USD 710 per tonne.

The palm kernel oil (PKO) market was recovering as well from the coronavirus-driven lows of the second quarter, but certainly not at the same pace as palm oil. The relative higher stocks of kernels and palm kernel oil continued to hang over the market. The PKO market rallied from USD 650 per tonne to USD 750 per tonne, but stayed rather subdued.

The rubber market was gradually experiencing some more demand, predominantly from the recovering Chinese automobile industry after the coronavirus lockdown. Initially it was eating into the physical stocks but, once the Thai and Vietnamese production was dropping off due to bad weather, the consumers and traders had to start buying physical rubber. Most of them were taken by surprise, and this short covering added fuel to the rally.

Prices of Sicom RSS3 continued to rise from USD 1 380 per tonne in early July to USD 1 820 per tonne by the end of September. However, it took until September to translate into some physical demand.

Prices in the Mombasa tea auction, the Company benchmark, moved up during most of the third quarter, but have come down from their peak to end the quarter 10% above the levels at the start of the quarter. More demand was experienced in the Mombasa auction as a lower output in India added some demand. However, the year-to-date crop in Kenya still showed a massive increase of 34.16%, keeping a lid on the price rally.

The coronavirus crisis continues to disrupt the normal import/export flow of bananas. Partly due to the weakening USD against the euro, the 'dollar' producing countries continue to send more volume to Europe than was usual before. Therefore, the third quarter has been characterised by lower market prices for quality bananas in Europe.

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