SINGAPORE (Aug 12): Weak crude palm oil prices and production output continue to weigh on planter Golden Agri-Resources.

The world’s second-largest palm oil company posted an operating loss of US$21 million ($28.2 million) for 2Q2016, compared with US$52.6 million in operating profit in the same quarter the year before.

Turnover for the three months was 5% lower at US$1.74 billion.

However, a tax benefit from a revaluation of some of its plantation assets in Indonesia added US$131 million to the company’s bottomline, resulting in earnings of US$39.5 million during the quarter.

That is nearly four times the earnings recorded during the same period the year before. The company expects a similar tax benefit to be recorded in the second half of this year.

Drought conditions caused by the El Nino weather pattern in the first half of this year led to a 25% decline in palm oil production from the year before.

But with the weather turning cooler, production output in the second half of the year is expected to improve, although the company expects CPO prices to be “range-bound” around current levels.

Nevertheless, Golden Agri CFO Rafael Concepcion says there is “upside” coming from China and India’s restocking of their palm oil stores.

“Right now, the inventory levels in India and China are still way below one month’s [supply], when they used to carry more than one month of inventory,” he explains. “So if they start restocking again they can easily buy from the market, close to a million tonnes, together with a few other bigger markets. So that will certainly move up the [CPO] price.”

At the end of June 2016, Golden Agri’s total planted area was just over 483,000ha, slightly lower than before as older estates are prepared for replanting. 

The company says it is focusing on replanting with “newer-generation, higher yielding seeds to support sustainable growth”.

Last month, the Indonesian government issued a five-year moratorium on new palm oil concessions, which essentially curbs palm oil companies’ expansion of plantations.

Golden Agri’s investor relations director Richard Fung says the moratorium does not have a direct operational impact on the company for now. “We have plantable area that meets all the criteria. But as you know, this regulation is still evolving,” he says.

“The decision to focus on replanting was made some time ago, at least a year ago, or longer,” Fung adds. “We do see this moratorium as another example of the Indonesian government becoming stricter on unsustainable expansion, which we believe will help the industry and support the CPO price.”

Golden Agri is trading 2.7% lower at 36 cents.