Halcyon Agri posts 2Q18 net loss amid lower rubber prices

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Halcyon Agri reported on Monday that it swung to a second quarter net loss of US$4.1 million from a year-earlier profit of US$1.5 million amid a weak rubber market.

Revenue for the quarter ended 30 June edged up 0.03 percent on-year to US$574.1 million, despite sales volume “increasing significantly” to 374,216 tonnes in the period from 294,907 tonnes in the year-earlier quarter, it said in a filing to SGX after the market close on Monday.

“This marginal increase in revenue is due to lower revenue per tonne from US$1,946 in the second quarter of 2017 to US$1,534 in the second quarter of 2018, in line with the movement of natural rubber market price during these periods,” it said.

“Gross profit per metric tonne decreased from US$138 to US$101 mainly due to margin compression across most manufacturing assets, driven by the low price levels of natural rubber over 2018,” it said.

The profit decline was also due to the non-recurrence of share of profit of associate, which was disposed of in the fourth quarter of 2017, additional operating expenses from newly acquired and incorporated subsidiaries and unrealized foreign exchange loss arising from the stronger U.S. dollar against the Indonesian rupiah, the euro and the Thai baht, it said.

It posted a share of loss of associates of US$1,000 in the quarter, compared with a share of profit of associates of US$5.6 million in the year-earlier quarter, it said.

The foreign exchange loss for the second quarter was US$9.35 million, compared with a year-earlier foreign exchange gain of US$3.07 million, it said.

In its outlook, the company expressed concern over rubber prices.

“The natural rubber market is facing a crisis. Demand levels are healthy and the price differential to synthetic rubber is at record levels in favour of natural rubber,” it said, but added, “natural rubber prices are not reacting to fundamental recovery drivers at this point.”

Robert Meyer, Halcyon Agri’s executive director and CEO, said his company’s strategy, which includes business units that benefit from the lower operating costs, even as factory margins were being squeezed.

But he pointed to longer-term concerns.

“I am very concerned about the health of the upstream ecosystem, as prices below US$1,500 FOB per metric tonne for tyre-grade rubber are bringing financial ruin to most subsistence farmers,” he said.

“The global supply equation is distorted by the unique situation in China, where a niche-grade futures contract continues to misguide participants to produce a grade of rubber (i.e. Wholefield Latex) for which there is little industrial use. This rubber inventory is untouchable for consumers outside of China, and is distorting global price discovery; market players should beware of the inevitable aftereffects of this extended era of low prices,” Meyer said in the statement.

For the first half, Halcyon Agri reported a net loss of US$2.9 million, swinging from a year-earlier profit of US$12.4 million, while revenue fell 7.3 percent on-year to US$1.05 billion, it said.

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