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Dekel Agri-Vision sees record profits in 2020, as palm oil recovers

By David Whitehouse
Posted on Friday, 24 January 2020 10:37

Dekel’s Ayenouan palm oil project in Côte d’Ivoire. Company photo.

Dekel Agri-Vision, an agriculture processing, logistics and farming company in Côte d'Ivoire, aims to beat its previous record profit in 2017 this year on the back of a recovery in palm oil prices, executive director Lincoln Moore told The Africa Report.

Indonesia, which has adopted a policy of using its palm oil production for conversion into biodiesel, is currently “the main driver on the demand side,” for palm oil, he said. “Supply will be tight” with yields, from south-east Asia continuing to be held back by previous low prices, he said.

The company, which owns the Ayenouan palm oil project in Côte d’Ivoire, is traded on London’s Alternative Investment Market (AIM).

Plans to enter cashew production at Tiebissou in a project costing $10m are on schedule for the end of this year, he said.

  • Gross margins on cashew nuts may exceed 35%, versus 25% for palm oil, he said.

In December, Dekel agreed a 50-50 joint venture with Swiss-German renewable energy company Green Enesys to develop hybrid solar and biomass power projects.

Dekel may seek to generate renewable energy from its planned cashew production, as well as from palm oil. The current focus, Moore said, is on the price the Côte d’Ivoire government will be willing to pay for the energy.

  • Project financing will be needed, either in the form of debt or equity, Moore said, adding that more detail on the needed funding will be available by the end of the year.
  • Cote d’Ivoire is aiming to produce at least 42% of its power from renewable energy sources by 2030.
  • Dekel aims to generate between 30 and 40MW of renewable energy from its first project.
  • A cost of between $1m and $2m per megawatt of energy gives a rough idea of the amount that of capital expenditure that will be needed, Moore said. The company has a set of potential debt or equity partners, he added.

Palm oil outlook

The company argues in a presentation to investors this month that palm oil supply growth is slowing, with supply from dominant players Malaysia and Indonesia stagnating.

Current prices of about $870 per tonne are about palm oil’s 10-year average price of $800.

A cautionary note comes from The Economist Intelligence Unit (EIU) in London, which says that the recent surge in palm oil prices is putting a brake on growth in consumption.

  • The EIU has reduced its forecast for growth in consumption in 2019/20 to 3.8%, compared with a typical growth rate just above 5%.
  • Further cuts to the estimate are likely if strong prices are sustained, the EIU says.
  • But the longer-term risk comes from the European Union’s ruling that palm oil cultivation results in deforestation and its usage in biofuels should be phased out by 2030.

The EU rules are result of protectionism of European sunflower and rapeseed producers – both of which are much more land-intensive than palm oil, Moore said. The EU rules “could have an impact” on palm oil prices in the long term, he added.

Bottom Line: Dekel will need successful diversification into renewable energy and cashew nuts to reduce its long-term exposure to volatile palm oil prices.

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