"FX Volatility: Boon and Bane

Global CPO production weakened in the quarter, due to lowered yields from ageing trees, higher biodiesel mandates, and the peaking of the El Nino weather pattern. As a result, global supply from key producing countries declined, causing prices to rise by 12% to $942.92/mt. Consequently, this informed pricing in the domestic and international markets. As a result, revenue from local sales increased by 72% y/y, while exports increased by 194% y/y. Overall, revenue for OKOMUOIL expanded 80% y/y to ₦43.4 billion. 

However, cost of sales surged by 135% y/y to ₦10.3 billion, with most pressure coming from the palm oil segment (+204% y/y). We believe this surge was triggered by higher CPO production costs, stemming from, inflationary pressures, and FX fluctuations.  Consequently, the passthrough from increased production cost drove gross profit margin lower by 6ppts y/y to 76%. On this basis, the company recorded a relatively slower growth of 67% y/y in gross profit to ₦33.1 billion, compared to the jump in revenue."

 

"Tight Palm Oil Supplies: Prices Poised to Rise

Looking ahead, the global palm oil market is expected to see tighter supplies and potentially rising prices in 2024 due to several key factors. 

Palm oil output in Indonesia and Malaysia, the world's top producers, is forecast to stagnate or even decline in 2024. This is attributed to ageing plantations and limited expansion possibilities. Both Indonesia and Malaysia are aiming for higher palm-based biofuel blends in the coming years. Indonesia is considering raising the mandatory bio-content blend from B35 (35% palm oil) to B40 (40% palm oil) and possibly B50 (50% palm oil) after 2025. Malaysia might also  implement a 20% mandatory biodiesel program in more areas. This will divert palm oil away from traditional uses like food production.  Current palm oil inventories from key producers are relatively low, creating concerns about future availability."