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Commodities

Olam says agricultural goods demand picking up on China recovery

Singapore commodity trader predicts rebound after net profit dropped 22% in 2020

Olam International faced a delay in an irrigation project in the African country due to the coronavirus pandemic.   © Reuters

SINGAPORE -- Commodity trader Olam International said demand for agricultural products is picking up thanks to the economic recovery in China and other Asian markets, after the COVID-19 pandemic sapped demand and disrupted supply chains last year.

The Singapore-based company trades in a wide range of agricultural goods, including rice, cacao and nuts, and its supply chains span more than 60 countries. Over 80% of its revenue comes from the food category, but the company also handles industrial commodities such as cotton and rubber.

"In spite of challenging conditions in many key markets across the world, we see there has been a significant pickup in volume and demand due to China's rapid recovery and many Asian countries which have been easing lockdown measures," Olam CFO N. Muthukumar said on Friday during an earnings briefing for 2020.

"We believe market conditions and sentiments are beginning to improve as economies are snapping back from the worst impacts of COVID-19 in 2020, and we expect this favorable market environment to continue to improve through 2021," he added.

Olam's net profit for 2020 was 245 million Singapore dollars ($184 million), down 22% from a year earlier, as it logged an impairment charge of SG$483 million on its palm oil plantation in Gabon. The company faced a delay in an irrigation project in the African country due to the pandemic, which will have an impact on the plantation's long-term yield.

Meanwhile, total revenue for the year increased 9% to SG$35.8 billion due to growth in sales volume as well as higher prices for some food staples such as grains, rice and edible oils.

CEO Sunny Verghese said there is also "a growing food security agenda as a result of the impact of COVID-19," which bodes well for the company. He said that the increasing adoption of technology in the agriculture sector will also benefit the group.

With respect to Myanmar, where a subsidiary processes teak and other hardwoods for wood products, Verghese said the company has a "limited presence" in the country. "Given the current circumstances and developments in Myanmar, we will evaluate long-term plans and strategic relevance of our investments in Myanmar."

Olam is 54% owned by Singaporean state investment fund Temasek Holdings and 17% by Japanese trading house Mitsubishi Corp.

On Friday, the company also said it will demerge and list one of its two internal units, Olam Food Ingredients, in the first half of 2022. "We want to list in a venue that will offer the best prospects for understanding the unique value proposition of the OFI business," Verghese said. The other unit, Olam Global Agri, will be listed later. Olam announced plans for the eventual listing of these two units last year and has been taking steps in that direction.

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