DekelOil notes soft first quarter after bumper low season

DekelOil Public, the operator and 100% owner of the vertically-integrated Ayenouan palm oil project in Côte d'Ivoire, announced its quarterly production of crude palm oil for the three months ended 31 March on Friday.

The AIM-traded firm said 13,605 tonnes of CPO was produced in the first quarter, down from 2017's record first quarter performance of 16,398 tonnes.

It said the production output continued a recent trend of deviation from typical seasonal trends, with the third quarter of 2017 also slightly down, the low season fourth quarter being “significantly higher”, followed by the high season first quarter again being softer.

DekelOil said the 2018 peak FFB harvesting season had to date been less volatile on a month-to-month basis compared to 2017 in terms of volumes of fruit produced.

Whilst the board said it could not be certain, the current local industry view was that it could result in the 2018 high season being slightly longer and less volatile than in 2017.

DekelOil's market share of FFB delivered to its mill as a proportion of total volumes harvested was said to be comparable with previous quarters.

PKO and kernel cake production in the quarter remained “broadly in line” with the same period in 2017, as lower mill utilisation enabled a higher percentage of kernels to be crushed and processed.

On the sales front, DekelOil noted a 16% increase in first quarter CPO sales to a record 13,758 tonnes, which reflected the lower availability of CPO across the region following reduced volumes of FFBs harvested.

During the period, the company added Louis Dreyfus Holding - a “leading” merchant and processor of agricultural goods - as a new customer in March, which further diversified the local customer base.

Stock on hand currently stood at “virtually nil”, following strong CPO sales.

The company saw lower year-on-year CPO sales prices, due to weaker international benchmark pricing and the strong appreciation of the euro against the dollar - palm oil's benchmark currency - particularly in December and January.

Management said it was looking to capitalise on the lower availability of CPO in the region to secure future sales at a premium to international prices for the remainder of the high season and the low season.

PKO pricing remained stable, which the board put down to strong international pricing offsetting the impact of the strong euro against the dollar.

There was lower year-on-year pricing and higher competition for FFB, due to lower volumes harvested leading to pressure on gross margins in the second half of the first quarter.

At that point, it reportedly became apparent to local producers that FFB supply in February and March would not match that of 2017.

“The first quarter performance was set against a backdrop of relatively weaker FFB volumes and lower international prices compared to last year,” said executive director Lincoln Moore.

“However, we remain focused on optimising the variables we can control, such as securing sales for our product at premium prices, maintaining our excellent relationships with the thousands of local smallholders who supply us with fruit, and growing our customer base.”

Moore said the board was “encouraged” by the record sales quantities which saw the firm record its best ever quarterly CPO sales performance, maintain its market share in terms of delivery of fruit to its mill, and secure Louis Dreyfus as its latest customer.

“We view diversification of our sales customer base as critical to maximising the sales prices for our product, particular given the lower CPO supply evident in the local market and this will hold us in good stead to extract premium prices throughout the remainder of the high season and forthcoming low season.”