Fitch: Crude Palm Oil Prices to Stay Low; Risks Rise for Asian Operators

Fitch Ratings says in a new report that it expects crude palm oil (CPO) prices to stagnate between USD600 and USD625 per tonne during the next 12 months, which will raise financial risks for Asian producers.

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.