Fitch: Crude Palm Oil Prices to Stay Low; Risks Rise for Asian Operators
CPO prices have been depressed due to output remaining healthy in Malaysia and Indonesia despite the El Nino weather effect in 2015, stagnant exports, stock accumulation and the narrow price differential between CPO and other vegetable oils.
Palm oil's use as a feedstock in biodiesel production has translated into a high positive correlation between CPO and crude oil prices. Crude oil prices are low and the expectation that appreciation in the next 12 months, if any, is likely to be modest is further dampening CPO prices.
As a result, CPO operators, even the large ones, have chalked up significant increases in FFO-adjusted net leverage, which exposes these companies to higher financial risk. For the large firms, well-spread-out debt maturity profiles provide some relief, and their FFO fixed-charge cover remains comfortable despite the falling prices.
The report "2016 Outlook: Asian Crude Palm Oil" is available at www.fitchratings.com.
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