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Brighter future for oleochemicals
When Indonesia changed its palm oil tax structure in October 2011, oleochemical producers in the country gained access to cheaper feedstocks.
On the flipside, the refining community in Malaysia suffered when they found it difficult to source for affordable feedstocks. Price cutting ensued as refiners, oleochemical, specialty chemical, specialty fats and biodiesel producers here fight for their survival.
“Despite the creation of unlevel playing field for more than a year, manufacturers here somehow managed to chalk up more exports,” said Malaysian Oleochemical Manufacturers’ Group (MOMG) chairman Tan Kean Hua.
He said as palm oil futures fell from a high of RM3,600 in April 2012 to RM2,400 currently, it became easier to export oleochemicals.
“We shipped out more volume, albeit at lower pricing, especially in the second half of this year,” he said in an interview in Kuala Lumpur.
Yesterday, the third-month benchmark palm oil futures on the Malaysia Derivatives Exchange traded RM23 higher to close at RM2,431 per tonne.
According to the Malaysian Palm Oil Board, the country exported RM10.64 billion worth of oleochemicals in the first 11 months of this year.
Asked if oleochemical exports are going to hit a record high this year, he said: “We’ll definitely surpass the RM11.5 billion mark by the end of the year.”
It has taken more than a year for Malaysia to change its palm oil tariffs, in response to Indonesia’s tax cut. Effective January 1 2013, Malaysia will lower crude palm oil (CPO) tax from 23 per cent to stagger at between 4.5 per cent and 8.5 per cent.
If palm oil prices hover between RM2,250 and RM2,400 a tonne, the tax is 4.5 per cent. And if the prices were to jump to RM3,450 per tonne, the tax is 8.5 per cent. Exports of duty-free CPO will also be prohibited.
If the government had responded earlier with the tax restructure, would Malaysia’s oleochemical exports have been even higher? Tan pursed his lips and tactfully replied: “Let’s not look into the past.”
“With the new palm oil tax structure coming into place, there’s more certainty on the horizon. Apart from CPO, refiners also produce stearin, another feedstock variant that is critical to our members. When refiners produce more of such feedstocks, our members are able to churn out more fatty acids, soap noodles, esters and glycerine,” he added.
MOMG members churn out 25 per cent of the world’s 10 million tonnes of oleochemical demand. There are 18 oleochemical producers in Malaysia with a combined annual capacity of 2.6 million tonnes.
After almost two decades, Malaysia is still the world’s oleochemical hub. This pole position stems from the community of its process engineers and chemists’ expertise to fine-tune ways to turn palm oil and palm kernel oil into more than 100 types of downstream products.
The three oleochemical giants in Malaysia, namely IOI Oleo Group, KLK Oleo Group and Emery Oleochemicals (M) Sdn Bhd, had recently taken to invest further downstream to make more profitable specialty chemicals.
Tan, who is also IOI Oleo executive director, said his company is investing RM130 million to build a new fatty ester and a 20,000-tonne specialty oleo derivative plant at the Prai Industrial Complex in Penang.
KLK Oleo Group reported that it is spending in excess of RM600 million to build an integrated methyl ester sulphonate and fatty alcohol plant in Shah Alam and a specialty fatty ester facility in Klang.
Emery Oleochemicals is pumping more than RM400 million into its Telok Panglima Garang facilities to produce biolubricants, green polymer additives and surfactants.
Apart from the three giants, ICM Specialty Chemicals Sdn Bhd is also investing RM130 million to put up a specialty ester plant in Pulau Indah, Klang. A 55:45 joint venture between Chemical Mate Technologies Sdn Bhd and Italy’s Societa Chimica Lombarda Pte Ltd, ICM’s plant is scheduled to start operations by mid-2014.
In a separate interview, ICM managing director Kenneth Chang Boon Kit expressed the need for a closer public-private collaboration.
He envisions the government setting up a dedicated platform for institutions of higher learning and technical colleges to work more closely with the chemical industry. This way, academicians can update and fine-tune their research and syllabus to that of manufacturers’ needs.
“By pooling our resources together, Malaysia will be able to sustain a critical pool of chemists to work on product development and engineers to design better processing plants,” he said.
Hotline for Sabah planters
In a statement yesterday, the ministry said due to weak CPO prices, there are cases in Sabah where millers are not buying fresh fruit bunches (FFB), thus affecting the income of the commodity producers, especially the smallholders.
“The ministry views this scenario seriously as it will affect the livelihood of smallholders, and together with the Malaysian Palm Oil Board (MPOB), it has set up a hotline to help smallholders who have difficulty in selling their FFBs to millers.”
In a move to reduce national stockpile, the government has also sped up implementation of the B5 programme and encourage other sectors to use palm oil-based fuel up to 10 per cent of their daily fuel.
The ministry and the MPOB will continuously monitor the situation closely and will take action to ensure operations are not disrupted. The phone numbers are: Kota Kinabalu 088-493700; Sandakan 089-224248; Tawau 089-777611; and Lahad Datu 089-867545.
Palm oil refiners heave a sigh of relief
KUALA LUMPUR: PALM oil refiners yesterday heaved a sigh of relief with the government’s new export tax structure for 2013, which they say will help restore Malaysia’s competitiveness.
The new structure which comes into force January 2013, would detract crude palm oil (CPO) from being shipped out, thus enabling the refiners to use it for their downstream activities.
The move will also raise the competitiveness of Malaysia in processing olein and stearine and exporting products.
Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad is pleased that the government has fulfilled its promise.
Downstream players have been hoping for the government to heed their call to scrap the quota as they said it lowered the industry’s competitiveness and reduced national revenue.
“The new tax structure has yet to be implemented, but we are hopeful that the refiners can improve their profit margin next year,” he said. At 1.5 per cent to two per cent for palm olein , he said, it would be more manageable and makes it a level playing field compared to Indonesia’s eight to 10 per cent.
After more than a year, the Cabinet responded to the plea of the refining community, to lower the tax from the 23 per cent.
Yesterday, the Plantation Industry and Commodity Ministry announced the new palm oil tax structure for January 2013. The next announcement for February 2013 palm oil tariff structure is scheduled on 15th January.
The plight of the refiners and others in the local downstream palm oil industry was felt more following neighbouring Indonesia’s review of its export tax structure last year to boost its own refining industry.
Now that the government has come up with the much needed tax structure, Mohd Jaffar said, it is up to the refiners and their innovativeness to improve their profit margins.
However news reports said Indonesia may also soon introduce changes to its export tax structure to ward off the stiff competition in January. Its agriculture minister recently said there will also be tax changes to reduce the stockpiles.
Pisang goreng ..mmm..my favourite
FRIED chicken, banana fritters, keropok lekor… what do these three top favourite foods on the local menu have in common?
They are all deep fried foods of course. But they are not the only ones. We deep fry lots of other items too — from potato and tapioca chips to curry puffs and tempura.
Why do we love deep fried foods? For one thing, the colour of deep fried food is an appetising golden brown. Secondly, there’s the crispy texture. Thirdly, frying in oil enhances the aroma of the foods.
Cooking food by immersing them in hot oil or fat is practised all over the world.
But not all oils are suitable for deep frying. Some oils are not stable. When heated, different cooking oils react differently as they break down and eventually start to smoke (also known as smoke point).
When a particular oil is said to have a high smoke point, this means it can be heated to a relatively high temperature before it starts to smoke. Some oils perform better for high heat cooking, like sauteeing or deep frying and some don’t.
Generally, vegetable oils have higher smoke points than animal fats (lard, butter). But oils such as olive oil has a low smoke point. Also, refined oils have higher smoke points as the process of refining removes impurities that causes oil to smoke.
But why is it important to have a high smoke point? At smoke point, oil breaks down, gives off an unpleasant, putrid odour and when food is cooked with this, it takes on an unsavoury flavour.
When oil reaches smoke point, there is also the danger of it catching fire and erupting into flames.
USE AND DISCARD
After deep frying, discard whatever oil is left. It is not advisable to reuse the oil. No, it’s not because used oil is “dirty” but rather, when oil is exposed to heat for a long time, the smoke point is lowered.
In the process of deep frying, bits of food such as batter or bread crumbs (used to coat food such as chicken) inevitably break off and get into the oil. These impurities will lower the smoke point.
GREAT FOR FRYING
Palm oil has one of the highest smoke point of all oils, at 235°C. Here’s how it compares with some popular oils:
Virgin olive oil 210°C
Corn oil 232°C
Sunflower oil 199°C
Sesame oil 232°C
Rice bran oil 245°C
Coconut oil 250 °C
Soya oil 210°C
An interesting observation about frying with palm oil is that its high smoke point means food deep fried in it will absorb less oil.
PACKED WITH GOODNESS
Palm oil is also high in nutrient content, highly resistant to oxidation and suitable for all methods of food preparation, from deep frying, stir frying to roasting and baking. It is also a good choice as a salad oil. There is no need to keep different types of oils in your larder as palm oil will meet all your cooking requirements.
Produced from the fruit of the oil palm (Elaeis guineensis), it contains a variety of fats, vitamins and nutrients, with no unhealthy trans-fatty acids that is found in hydrogenated oils.
Palm oil is free of artery-clogging trans-fats as it is made up of a balanced mix of fatty acids containing vitamins A and E and nutrients our bodies need. It contains 40 per cent oleic acid and 10 per cent linoleic acid, which are monounsaturated fatty acid and polyunsaturated fatty acid respectively. Those are the good fats and like it or not, our bodies require fat.
Palm oil is a rich source of carotenoids and vitamin E which makes it stable against oxidative deterioration. Unrefined palm oil and crude palm oil are nature’s richest source of carotenoids as compared to the other vegetable oils — 15 times more than carrot, and 300 times more than tomato.
Unlike other vegetable oils, palm oil is the only one containing the full spectrum of Vitamin E (tocopherols and tocotrienols). The lesser known form of vitamin E, tocotrienols, are powerful anti-oxidant that kills free radicals in the body. This helps lower the risk of certain chronic diseases and delay the body’s ageing process.
Studies by Dr Paul Sylvester, Professor of Pharmacology and director of Graduate Studies and Research at the College of Pharmacy, University of Louisiana, on the health benefits of palm oil show it has anti-cancer properties and the fatty acids of palm oil can inhibit and/or delay experimental carcinogenesis.
When red palm oil is refined and processed, some of the carotenes are lost but not the tocotrienols and other nutrients.
THE TREE
Oil palm trees (Elaeis guineensis jacq.) originates from West Africa. They were introduced to Malaya by the British in 1870 but as an ornamental plant. In 1917, the first commercial planting of oil palm was in Tennamaran Estate in Selangor. Today, the oil palm is the leading agricultural crop in the country (about 15 per cent of landmass), spanning across five million hectares.
The oil palm is the most efficient oil-bearing crop in the world. It requires only 0.26 hectares of land to produce one tonne of oil while soya bean, sunflower and rapeseed require 2.22, 2 and 1.52 hectares, respectively, to produce the same amount of oil.
Indonesia and Malaysia are the largest producers and exporters of palm oil in the world, accounting for two thirds of the world’s vegetable oils and fats shipment.
The oil palm tree produces compact bunches of fruit weighing up to 25kg each. Each bunch has about 1,000 to 3,000 small, dark purple to orange red (when ripe) fruitlets comprising a hard kernel (seed) enclosed in a shell (endocarp) which is surrounded by a fleshy mesocarp.
Both produce different types of oil but what we know as palm oil is that which is extracted from the mesocarp, so essentially, it is a fruit oil, not a kernel oil.
The oil yield from the fruit is high and as much as 5kg of oil can be obtained from a fruit bunch weighing 25kg.
Health benefits of red palm oil
RED palm oil, though having been in existence for several centuries, is now seen as the preferred solution for various health conditions, particularly those relating to vitamin A deficiency.
Malaysian Palm Oil Board (MPOB) director general Datuk Dr Choo Yuen May told Business Times that red palm oil contains the highest source of natural carotenes as well as tocopherols and tocotrienols.
“Carotenes in red palm oil, converted into vitamin A in the body, are a powerful source of antioxidants. These nutrients are used to treat health problems related to vitamin A deficiency, such as night blindness among children.”
“The vitamin A in red palm oil is 15 times more than carrot and 300 times more than tomato in terms of retinol equivalent,” she said in an interview recently.
She also said tocopherols and tocotrienols, which are naturally occuring vitamin E in tropical oils, help scavenge damaging free radicals. This means palm oil vitamin E helps slow down ageing and possibly prevent atherosclerosis and cancer.
According to the United Nations, vitamin A is an essential nutrient needed in small amounts for the normal functioning of the visual system, and maintenance of cell function for growth, red blood cell production, immunity and reproduction.
The United Nations also said that vitamin A deficiency is a major nutritional concern in lower income countries such as Africa and India.
Choo said night blindness, an eye condition that results in poor vision in low lighting conditions especially at night, affects as many as eight to 10 million malnourished children worldwide. If left untreated, vitamin A deficiency may lead to permanent blindness and death. “Carotenes in red palm oil have proven to be a very good source of pro vitamin A to help treat the disease,” she said.
According to Mayo Foundation for Medical Education and Research, the recommended dietary allowances of vitamin A vary among children with different ages. On average, children aged one to three years old would need 300 micrograms of vitamin A daily, while those from four to eight years old would need 400 micrograms daily. Those aged nine to 13 years old would generally need 600 micrograms of vitamin A daily.
Apart from local clinical trials, MPOB has also carried out the same research with reputable universities in the US, South Africa, Vietnam, India, China and Australia.
The studies consistently show that red palm oil is able to treat vitamin A deficiency in children who suffer from night blindness.
As an example, Dr A.J. Spinnler Benadé in one of papers titled “A place for palm fruit oil to eliminate vitamin A deficiency” stated that sweet snack or biscuits containing red palm oil given to school children suffering night blindness saw improvement in their vitamin A deficiency problem.
“If 35-50 per cent of the recommended daily intake for vitamin A were to be provided by red palm fruit oil, it is sufficient to prevent vitamin A deficiency,” he said in the research paper.
Dr Benadé fed the malnourished children biscuits baked with Carotino red palm baking fats. The affordable and tasty snack proved to be an ideal carrier for beta-carotenes and other micronutrients.
“The plus point is that children love snacks, so feeding compliance is not an issue. It contains no trans-fatty acids and its rich content of carotenes and vitamin E help to extend the shelf life of the biscuits,” Choo said.
Subsequent studies expanding on Dr Benadé’s research showed “Carotino biscuits” made an important contribution to the intake of beta-carotenes and specific micronutrients in vulnerable groups such as pregnant women, nursing mothers and adults working long hours under strenuous conditions.
“Through MPOB’s technology, red palm oil extracted from the palm fruit is rich in phytonutrients, retaining as much as 80 per cent of carotenes and also contains vitamin E (tocopherols and tocotrienols), phytosterols, squalene and co-enzyme Q10,” she said.
Nowadays, carotenes extracted from red palm oil are fast replacing synthetic vitamin A in multi-vitamin formulations. This is because scientists and doctors warn the dangers of synthetic vitamin A overdose in these supplements.
“Apart from being incorporated in multi-vitamin pills, carotenes are increasingly seen a popular choice in the food colorant market. As adverse effects of artificial colorants become clear, the demand for natural red palm carotene becomes even apparent,” she said.
Genting Plantations bets on genomic research
Currently, Genting Plantations’ average FFB yield is around 23 tonnes/hectare/year.
Genting Plantations, a 55 per cent unit of Genting Bhd, owns agricultural landbank of 66,000ha in Malaysia and another 162,000ha in Indonesia, through joint ventures.
“We hope to improve this number (FFB yield) by 15 per cent in the mid-term through genomic research and precision breeding,” said Yong.
He was speaking with the media after Genting Plantations’ biotechnology unit ACGT Sdn Bhd, signed on to American chemical company DuPont’s marker-assisted selection technology. In the next 30 months, DuPont promises ACGT to develop skills, tools and techniques aimed at raising oil palm yields.
DuPont, which was represented by its Asean group managing director, Ho Hsing, said the group has more than 9,500 scientists and engineers, with five innovation centres in Asia. “We’re pleased to improve agricultural productivity here.”
DuPont’s collaboration with ACGT seeks to bring down research cost. “DuPont’s marker-assisted selection technology is able to scale up and bring down research tenure to six years from the current traditional selection system which takes 11 years,” said ACGT chief executive officer Derrik Khoo.
Khoo assured stakeholders that ACGT is working with existing oil palm genes. “There is no genetic introduction or modification. We’ve so far planted up an experimental plot of about 10ha.”
Also present was head of GGT Sdn Bhd, Genting Plantations’ plant breeding subsidiary, Dr Lee Chong Hee, who explained that ACGT’s findings will enable his team to come up with “designer palms” that can bear many more fruit bunches with super-oily fruitlets.
An industry rises to the occasion
BOOST FOR MALAYSIAN RUBBER: Three decades after HIV/AIDS reared its ugly head, millions are still dying from it. Dec 1 — World AIDS Day — is a stark reminder of that horrifying fact. Without an effective vaccine or cure, Malaysian condoms have become the best defence in most parts of the world against the epidemic and other equally fatal, sexually-transmitted diseases, write Tan Choe Choe and Ooi Tee Ching
The world’s biggest condom maker has factories in Malaysia and Thailand. Supplying up to 15 per cent of the world’s current market, Karex Industries Sdn Bhd’s manufacturing facilities hardly have a day to stand still. And the company is working at turning its factories wholly automated to roll out more rubber at a much faster rate.
Unknown to many, since 2009, Malaysia has emerged as the world’s largest supplier of condoms, meeting 20 per cent of the world’s condom demand of 20 billion pieces a year.
With 15 per cent of the market share in Karex’s grip alone, the privately-owned Malaysian company churns out some three billion condoms that are distributed around the world a year.
Last year, the Malaysian Rubber Export Promotion Council’s data showed condom manufacturers here exported 4.37 billion pieces, valued at around RM285 million. This year, the value of condom shipments is expected to surpass RM300 million. Sales remain robust as this form of birth control is widely used in the prevention of sexually-transmitted diseases (STDs), especially HIV/AIDS.
An effective vaccine or cure for this terrible illness has yet to be found three decades after it was first uncovered.
An American gay man called Timothy Brown, who received a bone marrow transplant in 2007 to treat a type of blood cancer while he was a student in Germany, is the only person who seems to have been cured of the illness as the transplant appears to have kicked the HIV virus out of his system.
Previously referred to as the “Berlin Patient” to protect his identity as a HIV-positive man, he has since shrugged aside the cloak of anonymity to show the world that five years after his transplant, he remains free of the virus, despite having long given up his anti-viral drugs.
Brown’s case is a beacon of hope for many terminally ill HIV-patients, though it is still not clear how he has fought off the infection.
But it has spurred renewed optimism in the medical community as scientists continue their search for a viable, effective cure or vaccine. Until that is found, the humble rubber condom remains the best bet at preventing HIV infection.
Karex’s managing director Goh Miah Kiat also estimates that 40 to 50 per cent of the current global consumption of condoms is for the prevention of HIV/AIDS and STDs, a trend that his own company closely reflects.
Indeed, Karex, which opened for business in 1988, emerged as the No. 1 supplier of condoms globally because of the company’s foresight to focus on this market segment, which is competitive as the customers are generally government health and family planning agencies, non-governmental organisations (NGOs) and multilateral bodies like the United Nations.
“A lot of people didn’t look into this market segment because of the low profit margin, but we saw it as a potential. We looked into it, and we expanded our production accordingly. So today, we have the capacity that a lot of our competitors do not have.”
For Nulatex Sdn Bhd, a relative newcomer in the high-entry-barrier industry of condom manufacturing, the increasing awareness of the efficacy and reliability of condoms in the fight against the HIV/AIDS epidemic has proven to be a huge boon.
“It has driven our rather steady growth over the years, what with ongoing HIV/AIDS awareness campaigns around the world. But even so, it depends on religious and cultural acceptance. It is unlike gloves for healthcare, where the demand for that rubber will shoot up when there’s an illness outbreak.
“For condoms, there are no sudden push factors — it has always been used for STDs prevention, family planning, and personal hygiene — issues that have always been around,” said its managing director, Chan Cha Lin.
From about 200 million condoms per year in 2007, Nulatex’s production capacity has gone up to 360 million a year. “If you look at our order quantity, the biggest part of our sales is from the sale of regular condoms, which are used primarily in the prevention of HIV/AIDS and assurance of personal hygiene.”
The company has been selling a lot of its rubber to the African continent as well as China through various social marketing projects and NGO-initiated HIV/AIDS prevention programmes.
No. 1 worldwide, but not popular at home
THE condom is regarded by the National Community and Family Development Board or Lembaga Penduduk dan Pembangunan Keluarga Negara (LPPKN) as an ideal family planning tool, since it forms an actual, physical barrier to prevent sperm and egg from meeting.
With correct and consistent use, figures show that male and female condoms provide 98 per cent and 95 per cent effectiveness, respectively.
As an actual physical barrier to the exchange of bodily fluids, condoms are also ideal in the prevention of STDs, something which other methods of family planning cannot do.
In recent years, the pattern of HIV/AIDS infection in the country has slowly but clearly been moving away from what is now regarded as the “traditional” transmission patterns; infection is no longer occurring exclusively among needle-sharing drug addicts, passed on from sex workers to their clients and vice versa, or only among men who have sex with men.
Instead, alarm bells are ringing among health practitioners and policy-makers as a new pattern of infection has emerged — increasingly, the disease is being passed on from husbands to wives — drug addicts who have spouses and those who visit sex workers are not necessarily single males.
The majority of men who have sex with men in Malaysia, too, are actually married and lead seemingly normal, conforming lives on the surface.
Yet, no matter their proclivities and notwithstanding that Malaysia is the No. 1 condom supplier in the world, Malaysian men are not fond of using them. Local condom consumption is estimated at just 80 million pieces a year.
According to the Malaysian Population and Family Survey 2004 conducted by LPPKN, the condom is used only half as frequently as birth-control pills as a form of contraception, at 7.4 per cent versus 14 per cent.
The emergence of other long-term or more permanent methods of contraceptives may also have overcome the usage of condoms among some quarters. “We have been using condoms in the country since the 1960s and today it is still not the most popular method of family planning. Birth control pills remains the preferred choice because of the ease of use,” said LPPKN chairperson Tan Sri Napsiah Omar.
There is also the reality that it is almost taboo — religiously and culturally — to be caught with a packet of rubber; to the point that such precaution is regarded as indicative of immoral behaviour.
Condom manufacturer Goh Miah Kiat feels, however, that it is an unnecessary taboo. Young adults should be provided some form of protection, he said. As it stands, the Health Ministry has itself reported that it is seeing an increasing number of pregnancies among adolescents aged 10 to 19 years (from 3.1 per cent in 2010 to 4.1 per cent last year).
Speaking to the New Sunday Times on the sidelines of the World Population Day 2012 celebrations by LPPKN a few months ago, Napsiah (far right in the photo) expressed concern that about seven or eight children were born to unmarried teenage mothers every day.
“Many of them don’t even know how a baby is conceived.”
In an email interview later, LPPKN said: “From a public health perspective, prevention is more important (and) primary prevention of unintended pregnancy in adolescents involves the delay in the initiation of sexual activities until psycho-social maturity, or marriage, depending on the religious or cultural perspective.
“Secondary prevention is the use of safer sex practices by those who are sexually active, and who do not plan on abstaining from sexual activities.”
This would most certainly include the use of condoms, even though the federal agency admits that awareness of condom usage is still low in Malaysia, despite its advantages. “Condoms do not require a visit to a health professional or a prescription. They’re sold in drugstores and family planning clinics.
“Given the fact that Malaysia is currently the major latex condom manufacturer in the world, it is an added reason why wider usage of condoms should be encouraged locally,” it added.
Hotter demand at sports meets
THIS year’s London Olympics chalked up a new record for the highest number of free condoms handed out in the Games Village — 150,000 — and has been cheekily regarded as the “raunchiest games ever”.
Previously during the Beijing Olympics, 100,000 condoms were supplied. The Athens Olympics in 2004 prepared 130,000 condoms for the athletes.
The Sydney Games in 2000 originally allocated 70,000 pieces, but had to pump in an extra 20,000 very quickly.
Goh Miah Kiat of Karex doesn’t really see a direct correlation between major sports meets and sales of condoms. But Malaysian condom export figures, provided by the Malaysian Rubber Export Promotion Council, indicate that in the last five years, whenever a major sports meet pops up, there is always a sudden spurt in condom sales from the previous year.
For example, we exported 55 per cent more condoms in 2008 compared with 2007. In 2010, which is the World Cup year, our sales jumped 33 per cent more from before; this year, sales are expected to surpass US$100 million (RM303 million), still a jump of at least 10 per cent from last year.
“We don’t have customers in the United Kingdom but based on our World Cup experience in Africa, there were a lot more enquiries from interested buyers, and many wanted to custom make some condoms with fun ideas to commemorate the sporting event,” said Chan Cha Lin of Nulatex.
One of the most common enquiries that they received was to customise condoms with the design and colours of a country’s flag.
“Say if you were a Brazil supporter, you would probably buy a condom designed in the colours of that country’s flag.”
And he thinks it’s only logical that when there’s an influx of tourists in one spot for a sporting event, there will be an increase in “extra-curricular activities”.
‘Side effects’ of China’s new edible oil controls
China is Malaysia’s biggest export market, while Malaysia is China’s largest trading partner in Asean.
One of Malaysia’s significant exports to China is palm cooking oil for daily use. Every year, China spends some US$4 billion to buy close to four million tonnes of the kitchen staple from Malaysia.
It was reported that from January 2013, China’s Inspection and Quarantine Bureau will start to enforce a new set of technical specifications requiring the quality of imported edible oil to be at a cost-adding level.
The current understanding is that as long as palm oil exporters meet Poram’s specifications, shipments from Malaysia are likely to qualify quarantine rules imposed on vegetable oil imports into China.
In a recent interview with Business Times, however, Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad begged to differ.
He noted that there could be a misunderstanding and that there are actually many uncertainties at play.
In explaining the implication of China’s new rules on imported edible oils, Jaaffar likened the process to a consumer buying fruits from the supermarket and bringing it home.
“If you buy apples from the supermarket, you accept the quality as it is, at the time of purchase. You do not hold the supermarket responsible, if, on the way back home, the apples got bruised or deteriorate in quality from the high heat of your car parked under the sun,” he said.
The new rules in China, to be effective from January 2013, seemed to hold palm oil exporters responsible for the quality of oil deterioration although the price paid is not that of door-to-door delivery.
“If the China quarantine authorities want guaranteed landing quality, new cost-adding arrangements would have to be factored in. This can be very expensive and will result in unnecessary food price inflation in China,” he said.
Last month, China’s inflation rate fell to a three-year low, having expanded only 1.7 per cent from a year ago.
“We need to be more discerning of the implication of the new rules. We are well aware authorities from both China and Malaysia need to ensure imported cooking oil remains affordable and safe to consume by China’s 1.3 billion population and at the same time, reap steady income for palm oil exporters here,” Jaaffar said.
Back in April 2011, during his second official visit to Malaysia, Premier Wen Jiabao promised Prime Minister Datuk Seri Najib Razak of closer diplomatic and trading ties.
Even though China has long been running a trade deficit with Malaysia, Wen reportedly said China have no complaints. In fact, China agreed to continue buying Malaysia’s palm oil.
“Malaysia and China are facing economic development challenges. Therefore, with deep co-operation, we can together deal with such challenges and fulfil our mutual interests,” Wen reportedly said.
In forging warmer trading ties, Jaaffar expressed hope that both countries will come up with mutually beneficial arrangements.
“It is in the interest of China’s consumers that they should be able to go on buying affordable and nutritious cooking oil. It is also in the interest of palm oil exporters that shipment into China should not be rejected by reasons they have no control over,” he added.
Plantation Industries and Commodities Minister Tan Sri Bernard Dompok is scheduled to visit China for the Malaysia-China Palm Oil Trade Fair & Seminar 2012 in Chongqing from November 29 to 30 2012.
IOI Corp Q1 net profit more than doubles
In its filing to the stock exchange yesterday, IOI said it posted pre-tax profit of RM730.8 million, 72 per cent higher than RM424.1 million, a year ago.
The increase is due mainly to paper gain of RM259.2 million on foreign currency denominated borrowings and higher contributions from all major segments other than plantation segment.
IOI’s oleochemical profits increased to RM73.2 million from RM33.2 million. The group reaped higher profit margins from the product sales of its oleochemical and specialty fats business.
During the quarter, IOI’s plantation profit shrank 28 per cent to RM401.2 million from RM557.1 million reported a year ago. The lower profit was due mainly to lower harvest of fresh fruit bunches coupled with lower palm oil prices. Average palm oil price realised in the first quarter amounted to RM2,941 a tonne, compared to RM3,149 a tonne posted a year before.
Like other plantation companies, IOI’s oil palm business continues to face challenges on manpower constraints and prevailing lower palm oil prices.
However, in the mid-term, the group expects to perform well with resilient demand from the food sector, price competitiveness over other edible oils.This is mainly fuelled by higher consumption of cooking oil in emerging markets like Asia and Africa. IOI expects palm oil price to recover beginning early 2013.
Two months ago, prices plunged to a low of RM2,255 a tonne. It has since bounced back to trade at around RM2,400. Yesterday, the third month benchmark crude palm oil futures on Bursa Malaysia Derivatives Market added RM30 to close at RM2,459 a tonne.
IOI’s property development profit climbed nine per cent to RM111.8 million, thanks to higher share of results from Singapore jointly controlled entities. Back home, its property investment profit jumped 13 per cent to RM15.2 million from RM13.5 million as occupancy rates and rental yields of select real estate improved.
Indonesia’s GAR issue RM1.5b sukuk
KUALA LUMPUR: Golden Agri-Resources Ltd (GAR)’s unit, Golden Assets International Finance Ltd, has issued RM1.5 billion Islamic medium-term notes (IMTNs) pursuant to its 15-year ringgit-denominated IMTN programme of up to RM5 billion.
GAR, whose parent is Indonesia’s Sinar Mas group, is currently listed on Singapore Exchange Securities Trading Ltd.
In a statement yesterday, GAR said Malaysia is ideal for sukuk issue, given its well-established and advanced sukuk market with abundant liquidity and familiarity with the palm oil industry.
The 5-year IMTNs will mature in November 2017, it said. “The net proceeds will be used for the company’s general corporate purposes which are in compliance with syariah principles.”
OSK Investment Bank Bhd and RHB Investment Bank Bhd are the joint principal advisers/joint lead arrangers for the programme and the joint lead managers/joint underwriters and primary subscribers for the IMTNs.
Its chairman and chief executive officer Franky Oesman Widjaja said the sukuk will help strengthen its balance sheet, extend the overall debt maturity profile, maximise financial flexibility and enhancing its position to execute growth plans. –Bernama
French Senate rejected ‘Nutella Tax’
Initiated by French Senator Yves Daudigny, the new tax on palm oil sought to raise the figure to €400 (RM1,556) a tonne from the current €100.
It is code-named “Nutella Tax” because palm oil is a popular ingredient in Europe’s favourite chocolate hazelnut spread called Nutella.
Following the proposed tax, there will be a six euro cent hike on per kg of Nutella, commonly used in restaurants and creperies across France.
The tax hike on palm oil is based on claims alleging that the food ingredient is bad for health because it contains high levels of saturated fats; and the oil palm industry is causing wanton deforestation.
It was reported that French Senators will have another chance to vote on the proposal and it will still need to be considered by the lower house, the National Assembly.
Malaysian Palm Oil Council chief executive officer Tan Sri Dr Yusof Basiron highlighted that both of the claims are false and recycled from the US anti-palm oil campaign which proved to have no scientific justification. “This French campaign is, at best, 20 years outdated,” he told Business Times in an interview.
First of all, palm oil’s saturated fat content should be analysed in relation to the total fats consumed by the French people.
“The majority of saturated fats consumed in France comes from animal sources — from meat, milk, cheese and butter — not from palm oil,” he said.
The French consume about 101kg of meat per person per year with an average of 15kg of saturated fat content. Milk consumption per person is 92.2 litres, containing 4kg of milk fats which belong to the saturated fats category. Cheese has 30 per cent animal fat content and the French are well known to consume 24kg of cheese per capita, which works out to be 8kg of saturated animal fats. Butter consumption is 7.3kg per capita which is 100 per cent saturated animal fats.
“If we were to add these up, the total animal saturated fats from milk, meat, cheese, and butter per person per year is 34.4kg. In comparison, palm oil consumption per capita in France is only 2kg,” Yusof concluded.
In rebuking allegations that oil palm planters in tropical countries cause rampant deforestation, he noted Malaysian farmers’ track record in efficient land use and conservation.
“Do you know that more than half of Malaysia’s landmass is still under forest cover? Only a quarter of total land area is designated for agriculture. In contrast, forest area in France covers just 28 per cent of total land area while agricultural land takes up more than 50 per cent of the country.
The oil palm tree yields 4.13 tonnes of vegetable oil per hectare, or 10, seven and five times the yields of soyabean, sunflower and rapeseed, respectively. At the same time, oil palms occupy less than five per cent of the world’s land under oil crop cultivation.
Yusof adduced more studies from reputable science journals detailing oil palm trees are actually the most environmentally- friendly among all oil crops. This is because on a per-litre basis, palm oil production requires less energy, land and fewer fertilisers or pesticide usage compared to other vegetable oils.
Oil palms have a productive lifespan of 20 to 30 years while its competitors like rapeseed, soya and sunflower need to be uprooted every four months during harvest and that contributes to soil erosion.
More importantly, a recent study from Fonds Francais Alimentation et Santé finds that replacing palm oil with partially-hydrogenated soft oils is a bad option for French consumers as it would potentially lead to a rise in the level of trans fat consumption.
Yusof concluded the Nutella Tax is irresponsible, ill-informed and ignores the primary source of saturated fats in the French diet.
“We urge the French government to reject the Nutella Tax. The right thing to do is to inform the French public of the truth about palm oil nutrition.
“Oil palm trees are not genetically-modified and that the oil from the fruits is free of dangerous trans fats and contains valuable vitamins,” he said.
One of the biggest risks to France’s economic growth is the cost to the food processing industry which rely on imports to be competitive, and consumers who spend more of their disposable income on less.
If France forges ahead with the Nutella Tax that discriminates palm oil from other vegetable oils, such a move will only serve to make food unnecessarily expensive to the French public.
From an international trade perspective, Alan Oxley, World Growth chairman and former chairman of the GATT, the predecessor of the World Trade Organisation (WTO) commented the Nutella Tax jeopardises France’s trade relationship with fast-growing economies like Malaysia, Indonesia and Africa.
World Growth, in its latest newsletter, noted the 400 per cent tax hike on palm oil will invite retaliation against French exports such as aerospace, automobiles, wine and military equipment.
“It is ironic France finds itself facing this prospect. Just a few months back France’s own trade minister, Nicole Bricq, declared France would practice ‘reciprocity’ if emerging economies erected barriers to French exports. Now France is inviting retaliation against French exports,” said Oxley.
French farm interests, such as producers of higher cost oil seeds — sunflower and rapeseed — appear to have pressured France’s Senate and now retailers like Casino and System U refuse to stock up on products containing palm oil, on the belief it puts human health at risk.
Oxley highlighted that France’s Nutella Tax appears challengeable under WTO rules. “The WTO Sanitary and Phytosanitary Agreement makes it clear that it only permits restrictions on imports on health grounds if there is scientific evidence of the damage to health and there has been a process of risk assessment,” he said.
TH Plantations buys more land from parent
“All shareholders, except our parent, approved of the acquisitions. They included those holding substantial stake like the Employees Provident Fund,” THP chief executive officer and executive director Datuk Zainal Azwar Zainal Aminuddin said at a press conference after the company’s extraordinary general meeting held here on Monday.
The RM535.64 million deal involves issuance of 209.23 million new THP shares at RM2.56 per share to LTH as payment for 100 per cent of TH Ladang (Sabah & Sarawak) Sdn Bhd and 70 per cent of TH Bakti Sdn Bhd.
This would result in LTH’s 59 per cent stake in THP to increase to 71 per cent, while other investors’ holding dilutes. Logically, these investors would only vote in favour of the deal if there had been a tacit understanding that LTH will, in due time, pare down its stake in THP.
Asked if those holding substantial stake in THP like the Employees Provident Fund and Yayasan Pok & Kasim voted in support of the deal, Zainal Azwar nodded and confirmed their approval.
He then said the proposed acquisition will most probably complete in the next 10 days. “This deal will more than double our landbank to 91,078ha and increase the total oil palm planted area from 38,154ha to 53,805ha,” he said.
TH Ladang (Sabah & Sarawak) and its subsidiaries are in the business of managing oil palm, teak and rubber estates, while TH Bakti’s focus is on oil palm estates.
On the outlook for the company, Zainal Azwar said RM725 million in capital expenditure will go to planting up oil palms across 23,000ha in the next four years until 2016.
Also present at the press conference was THP chairman Tan Sri Dr Yusof Basiron.
Last month, it was reported that Sabah Forestry Department had rejected the execution of the teak and rubber plantation development agreement with TH-Bonggaya.
In response, Yusof said THP had just received written approval from the Sabah Chief Minister’s office. “The initial rejection was brought on by the issue of interpretation. Now, all parties are in agreement that LTH remain the licence holder while TH-Bonggaya carry on with the planting of teak and rubber trees.”
Do more to defend palm oil, RSPO told
“The RSPO should be more positive when questions of a negative nature are posed,” Plantation Industries and Commodities Minister Tan Sri Bernard Dompok told reporters after launching the Third International Plantation Industry Conference and Exhibition (IPiCEX 2012) here yesterday.
“Otherwise, it would seem that they do not believe in the work they are doing – you are certifying palm oil as being sustainable and yet at the same time, not putting up any support for the industry. Certification bodies such as RSPO must support the very products that they are certifying.
“He was commenting on Malaysian Palm Oil Council (MPOC) chief executive officer Tan Sri Yusof Basiron’s statement that RSPO has failed oil palm growers. Dompok said what MPOC had highlighted needs to be taken into account.
On Saturday, MPOC’s Yusof had lashed out at the international multi-stakeholder organisation for failing in its function. He had stated that there is no point of having 4.78 million tonnes of RSPO-certified oil in the market if it could not even gain access into France.
French retail chains recently campaigned to label their goods “palm oil-free” in support of environmental groups against the destruction of rainforests due to oil palm cultivation.
Yusof had also stated that planters have not been adequately represented in the RSPO, resulting in the resolutions put forward by oil palm growers being repeatedly outvoted every year.
Dompok said the equal representation of stakeholders is a valid point that must be considered by an organisation of this nature.
On the issue of no-palm oil labelling in France, he reiterated that Malaysia and France are working towards forming a joint working committee.
He has been in touch with French Minister for Agriculture Stephane Le Foll on having the joint working committee on oil palm industry. “So far we are awaiting their response,” he said, adding that his ministry’s secretary-general Datin Paduka Nurmala Abd Rahim would take up the matter with the French Agriculture Ministry.
Planters appeal over health insurance plan
Since the start of this year, the Health Ministry announced it requires all employers to pay for foreign workers’ medical insurance. Employers who do not comply will not have their foreign workers’ permit renewed by the Immigration Department.
This add-on scheme to the health screening requirement provides hospitalisation and medical benefits at government hospitals to foreign workers with coverage of RM10,000 a year for all injuries and sickness.
A total of 25 insurance companies and third party claims administrators are participating in this scheme.
The Health Ministry said this compulsory medical insurance is meant to address the problem of hospital charges owed by foreign workers. It is estimated government hospitals face an annual RM5 million or RM6 million unpaid medical bills incurred by foreign workers.
So far, foreign workers’ employers in the construction and restaurant sectors are complying with the Health Ministry’s ruling.
In a telephone interview with Business Times from Miri recently, Sarawak Oil Palm Plantation Owners’ Association (Soppoa) vice-president Paul Wong said this RM120-a-year insurance policy will force oil palm and rubber farmers to pay a further RM50 million to insurance companies.
“Injury-related accident cases are already covered by the Workmen Compensation Insurance. Currently, employers are paying RM72 for each foreign worker. As such, this new ruling mandating us to pay another RM127.20, which include the six per cent service tax, is grossly unjustified. We should not be burdened with additional costs,” he said.
“In Sarawak, we’re already paying the expatriate rate at government hospitals to treat our foreign workers,” Wong said, adding that since plantation companies provide letter of guarantee to hospitals prior to the admission of foreign workers as patients, the question of hospital charge arrears should not arise.
Apart from Soppoa, the Malaysian Palm Oil Association, Malaysian Estate Owners Association, East Malaysia Planters’ Association and Malayan Agricultural Producers Association have also detailed the oil palm and rubber plantation owners’ plight to the government.
Given the prevailing low palm oil prices hovering at around RM2,500 a tonne, Wong said the government should be more mindful, and not further burden planters.
Since the price plunge over the past few months, plantation companies in Sarawak have been losing money as many of the young palms have yet to reach their prime fruit bearing age.
Should the government bulldoze ahead to enforce additional terms and conditions for work permit applications, Soppoa foresee it would worsen the current discouraging situation planters face.
“With the labour shortage in the state, this will worsen the wastage situation of close to a million tonnes of fresh fruit bunches rotting in the fields,” he said.
Palm oil prices expected to dip before recovering
A technical analyst with CIMB Futures Teoh Ghim Meng thinks the market may have yet to fully factor in bearish news of high stocks level. On the longer term, however, he said he is bullishly biased.
“Prices may dip as low as RM2,230 a tonne. We need to ask ourselves how much of the bearish news of high stocks have already been factored in.
“As palm oil shipments to China pick up in preparation for the Lunar New Year, prices are likely to re-test the RM2,600 to RM2,650 level again,” he said.
Last Friday, the third-month benchmark palm oil futures on Bursa Malaysia Derivatives traded RM41 lower to close at RM2,469 a tonne.
Teoh, a renowned vegetable oils trader with 34 years experience in the derivatives market, was speaking to Business Times at the Palm Oil Refiners Association of Malaysia’s annual dinner held here over the weekend.
Among the 1,000-odd vegetable oils traders at the gathering was OSK Investment Bank vice president of futures and options Ryan Long.
He, too, expects palm oil prices to dip below RM2,250 a tonne in the immediate term as freshly-pressed crude palm oil continue to fill up the storage tanks all over the country.
It was reported that China’s palm oil purchase may amount to 5.7 million tonnes this year because recent price decline had spurred more demand for the staple cooking ingredient.
“We expect Malaysia’s October exports to be higher than September as India and China are raising their orders,” he said.
Over in India, Godrej International Ltd trader Dorab Mistry said a stronger US dollar will lead to lower commodity prices in 2013 unless a big weather disturbance emerges.
“I also believe the cyclical bull market in commodities has come to an end,” he said in his vegetable oils outlook at the India’s Central Organisation for Oil Industry & Trade convention held in New Delhi yesterday evening.
“The production of commodities will be profitable but there will be no super-profits except occasionally,” he added.
Genting not shareholder, never given shares: FGV
In a statement, FGV president and chief executive officer Datuk Sabri Ahmad said it is imperative for FGV to provide such clarification so that the public as well as Felda settlers are not misled by ambiguous reports.
Sabri was commenting on a report published by a news portal, MalaysiaKini on October 24 entitled “Umno MP: Why did unrelated person get one million FGV shares.?”
Sabri said as a matter of fact, the 407 million shares stated in the article are actually the number of shares directly held by Genting Bhd in Genting Plantations Bhd as at May 7 2012, based on Genting Plantations Bhd’s annual report 2011.
“We trust the media, including social media, practises good journalism, with an eye to a strong ethical framework to reach the sources who help make compelling news stories.
“On our part, we are ever ready to cooperate to correct any possible confusion among the readers and the public at large,” he said.
Sabri also added that FGV shares are syariah-compliant, and that the Syariah Council has confirmed that contrary to the allegations made by the opposition about the “halal” status, the shares remain “halal” even if Genting decided to have a shareholding in FGV.
“Should this happen, it will be Genting Bhd who is investing in FGV, and not otherwise where FGV buys and owns Genting shares,” added Sabri.
‘RSPO has failed oil palm growers’
PETALING JAYA: “The RSPO has failed oil palm growers. There are 4.78 million tonnes of RSPO-certified oil in the market. What’s the point of producing more when it can’t even gain access into France?” said Malaysian Palm Oil Council chief executive officer Tan Sri Yusof Basiron.
“Planters are not adequately represented in the RSPO. You can see for yourself, the resolutions put forward by oil palm growers are repeatedly outvoted, year after year,” he said.
Yusof was speaking to Business Times on the sidelines of a forum organised by the Palm Oil Refiners Association of Malaysia here yesterday.
In a separate interview, Malaysian Estate Owners Association (MEOA) president Boon Weng Siew concurred that the RSPO has deviated from its original intent.
When asked to comment on recent developments of the RSPO meeting in Singapore earlier this week, Boon said oil palm planters do not agree with any change to the existing eight Principles and 39 Criteria, particularly on land use and labour.
He explained how Malaysia’s small- and mid-sized oil palm estates are already practising sustainable oil palm planting by virtue of compliance with the country’s environmental and labour laws.
Established in 1931, MEOA represents 153 small- and medium-sized estates of more than 40 hectares.
Boon noted that all oil palm planters, be they smallholders or estate owners, comply with the Environmental Quality Act 1974 and the Environmental Impact Assessment Order 1987.
“We prepare and submit EIA reports for agriculture land development covering an area of 500 hectares or more. Open burning of plant residue is prohibited,” he said.
Apart from eco-friendly laws, oil palm planters observe the Employment Act, the Industrial Relations Act and the Minimum Standard of Housing and Amenities Act.
Estate owners are not required, by law, to provide accommodation, schools, clinics and places of worship but many of MEOA members do so as part of their corporate social responsibilities.
“However, when accommodation for workers is provided, the site and buildings must comply with the Minimum Standard of Housing and Amenities Act 1990. The clinic also has to comply with the Private Healthcare Facilities and Services Act 1998,” Boon said.
“Malaysia’s palm oil production is already sustainable by virtue of compliance with national environmental and labour laws,” he added.
Western environment activists – without providing scientific evidence that can be verified – have vehemently claimed that oil palm planting on peatland pollutes the air. They lobby for the inclusion of greenhouse gas and carbon footprints calculator in the RSPO principles and criteria.
Boon said oil palm planters disagree with such a move as there are no cogent scientific findings to justify such a consideration. “Credibility and accountability are critical in any certification system. Since the RSPO said it is willing to consider such ludicrous claims, one can conclude the RSPO is detached from reality.”
RSPO propose to tighten land clearing standards
SINGAPORE: THE Roundtable on Sustainable Palm Oil (RSPO) is seeking to tighten its standards, making land clearance for planting oil palms more difficult from 2013.
If Malaysian and Indonesian oil palm growers, who form the bulk of the industry, disagree to the proposed changes, it could delay the multi-stakeholder body’s first review of its principles and criteria — which govern the standards, said its president Jan Kees Vis.
“Malaysian, Indonesian and African growers would need time to go back and talk with their colleagues if they want to go ahead with the proposed changes,” he said, at a media briefing here yesterday. He added the land use criteria could be the biggest impasse in the review.
The review has been extended by another six months to March 2013 to accommodate various other issues affecting the palm oil industry.
RSPO existing standards, under its eight principles and 39 criteria to define sustainable palm oil, have not been clear on labour and human rights, greenhouse gas in relation to land use change, greenhouse gas (GHG) emissions from current operations.
The GHG and carbon footprint calculator came about after the principles and criteria were established in 2004.
“What we are saying is that if your current business model is to increase production through replanting, please expand on areas which have been deforested earlier,” he said.
Vis also said, with the growth of palm oil demand expected to double from 50 million tonnes now to 100 million tonnes in 2015, the RSPO needs to work to transform the huge markets in China and India which consume eight million tonnes to absorb certified sustainable palm oil (CSPO).
Currently, it is the large consumer goods manufacturers like Walmart and Unilever which can introduce the CSPO in these two countries but both governments need to extend the support, he said.
The RSPO has boasted that the supply of CSPO globally has soared 250 per cent between 2009 and 2011 while the sales volume had grown six times.
Apart from the Netherlands, Belgium has announced that it will source only CSPO by 2015, as a pledge by an alliance of major processors, manufacturers and industry associations. Yesterday, the UK also announced a similar interest.
Meanwhile, Vis said the RSPO was still having talks with Indonesia to enable its palm oil industries which have received the mandatory Indonesian Sustainable Palm Oil (ISPO) to benefit from the international RSPO standards by complying with the additional standards.
He noted Gabungan Pengusaha Kelapa Sawit Indonesia (GAPKI) or the Indonesian Palm Oil Association withdrew its membership with RSPO last year to support the ISPO. “If they (the individual growers) are RSPO-certified I hope they will be certified (automatically) in Indonesia too”, he added.
Planters call for flexible foreign worker intake system
Malaysian Estate Owners Association (MEOA) president Boon Weng Siew said the industry, which has been over-dependent on Indonesian workers to harvest the oil palm fruits, now find it increasingly difficult to recruit workers from the republic because of competition from plantation expansion there.
“Although the government has recently allowed recruitment from Bangadesh, it is on government-to-government basis,” he said. “The negotiations with Bangladesh is taking too long. Many estates continue to face acute labour shortage to harvest the oil palm fruits,” he added.
“The oil palm industry has been losing billions of ringgit in palm oil export earnings every year,” he told Business Times in a telephone interview from Johor Bahru yesterday.
He estimated that some five million tonnes of oil palm fruits are rotting in the fields. That is equivalent to a million tonnes of crude palm oil. At current pricing of RM2,500 per tonne, that translates to RM2.5 billion in opportunity loss of export earnings.
“Foreign workers, which used to make up half of the 600,000 workforce in the estates, have now been severely reduced,” he said. “We urge that foreign worker intake not be confined to government-to-government negotiation with Bangladesh. Agents should be allowed to bring in foreign workers from any country,” Boon said.
“Otherwise, the government should re-activate the foreign worker intake approval fast-track system under the Plantation Industries and Commodities Ministry. This is almost equivalent to a one-stop centre. Planters prefer this option rather than having to deal with three or four ministries,” he added.
Established in 1931, MEOA represents small- and medium-sized estates of more than 40 hectares.
Boon highlighted that plantation companies have always been offering productivity-based salaries. A harvester, for instance, can earn between RM1,800 and RM2,000 a month, depending on the quantity and quality of fruit bunches he harvests. “A family of three working together can earn up to RM3,000,” he said.
Furthermore, the job offers housing, uninterrupted supply of electricity and piped water, medical, schooling and recreation facilities free of charge by the estate owners. These are now enjoyed by the foreign workers.
IOI Corp Bhd executive chairman Tan Sri Lee Shin Cheng yesterday concurred with Boon and reiterated the call for the government to be more flexible in foreign worker intakes.
“The trees are fruiting but there’s acute shortage of harvesters and this is affecting the country’s palm oil export earnings. The industry has been finding ways to mechanise for the last 40 years and the reality is it is difficult to mechanise. If it were that easy, we would have done it a long time ago,” Lee told reporters after the company’s shareholders’ meeting here yesterday.
Lee said plantation companies understand and fully support the government policy to employ more locals and enhance mechanised harvesting on the estates. The reality is far from expectations.
Many young locals entering the labour market are just not interested in menial jobs like the harvesting of oil palm fruits. “We do not want to be too dependent on foreign labour, but do we have any other feasible and practical alternatives?” he questioned.
IOI to start China project next year
“We’ve bought a piece of land in the Jimei district of Xiamen for 1.2 billion yuan (RM587 million). We have plans for a mixed development comprising a shopping mall, a hotel and office space. The residential space will be in the form of condominiums and villas,” said IOI Corp Bhd executive chairman Tan Sri Lee Shin Cheng.
“The development cost would be around twice the cost of the land,” he told reporters yesterday after its shareholders’ meeting here yesterday. Also present were his sons Datuk Lee Yeow Chor and Lee Yeow Seng, who are executive directors.
Yeow Chor said about RM600 million of IOI Corp’s cash reserves of RM2.7 billion has been committed to finance the land cost in Xiamen.
“Our cash reserves is not too high or too low at the moment. Should there be some good landbank acquisition opportunities, we have the financial might to seize it,” he said.
As early as 2007, IOI invested US$62.63 million to take up a 33 per cent stake in PT Bumitama Gunajaya Agro. This was part of its plan to participate in Indonesia’s oil palm expansion and ensure upstream profit growth.
Today, Bumitama has an agriculture landbank of some 200,000ha in Indonesia, of which some 120,000ha are already planted up with oil palms. Of that total area, 87,851ha are held under the company and 31,311ha under the smallholders or plasma schemes. Currently, IOI Corp has a 30 per cent stake in Singapore Stock Exchange-listed Bumitama Agri Ltd.
TH Plantations plans Sarawak acquisitions
“It’s a brownfield block in Bintulu, away from native customary land. The oil palms are young, between two and five years old,” a source said.
“It’s going for RM20,500 per hectare. It is at a slight premium because this Bintulu estate includes a quarry mine, separately priced at around RM70 million. It has income-generating rock reserves of up to 30 years,” the source told Business Times.
“Currently, TH Plantations landbank is about 45,000ha. If you count the 46,000ha block of estates to be transferred from parent company Lembaga Tabung Haji and this Bintulu estate, it will come up to around 100,000ha,” the source said.
Five months ago, TH Plantations told the stock exchange that it wanted to buy 45,738ha of agricul-ture landbank from its parent company Lembaga Tabung Haji for RM536 million.
The acquisition is to be satisfied via the issuance of 209.23 million new THP shares at an issue price of RM2.56 per share. If the deal goes through, TH Plantations’ agriculture landbank would double from the current 44,933ha to 90,671ha.
The deal to double TH Plantations’ landbank hit a snag last week when Sabah Forestry Department rejected the execution of the teak and rubber plantation development agreement with TH-Bonggaya.
Sweet serendipity
“Oh no…my car is out of petrol and I’m going to get a summon? Sigh …” I thought to myself. I got out of my car and explained my predicament to the policeman. He listened attentively and asked if I could still start up my car. I turned the ignition and the car engine whirred.
He then told me to make my way to the petrol station 1km ahead while he and his colleagues followed my car from behind. My happiness, however, was short-lived. The car engine sputtered and glide to a stop, again. I’m about 500m away from the petrol station. “So near … yet so far.”
This time, three policemen got down from their car and walked to mine. As they positioned themselves to push my car from behind, one of them came to the front and told me to engage my car’s gear to “N” and keep the steering wheel straight.
They pushed my car. Throughout that 3-minute journey I thought to myself ….wow! There are really kind souls among the police force. Once we reached the petrol pump, I pulled up the handbrake and got out of the car. The policemen, all hot and sweaty from pushing my car, took turns to advise me on ways to take better care of my car. I thanked them from the bottom of my heart and we shook hands.
Before fuelling up my car, the attendant at the petrol station tinkered with the fuel filter. “Mesti buat macam ini. Kalau tidak, nanti banyak problem (You need to do this first. If not, there’ll be problems later),” he said. The attendant turned the ignition on and off a few times for the fuel pump to push the fuel into the engine. The car started to purr again. Yay! I grinned at the attendant. He winked and waved goodbye, “OK, boleh jalan (OK, you can continue your journey).”
I reached into my handbag and my assignment sheet stated I’m required to cover an Malaysian Palm Oil Board (MPOB) event at Equatorial Hotel Bangi. Sigh…the only place I know in Bangi is the MPOB headquarters. I made a few phone calls and drove over.
Soon as I reached MPOB headquarters, En Saufi returned my call and got En Aedham to escort me to Equatorial Hotel. As I started the car engine again, I thought to myself … wow! There are really kind souls among MPOB officials 
China likely to buy 6m tonnes palm oil
“The value add of palm oil will spur more usage of this commodity,” said MPOC regional manager for China market Desmond Ng.
“Currently, palm oil is mainly used as a deep-fry and baking ingredient in many restaurants and food-processing factories in China,” he said in his presentation at the Outlook of China’s Oils and Fats Industry in 2013 at the Palm Oil Trade Fair and Seminar (POTS) 2012 yesterday.
According to the Malaysian Palm Oil Board’s data, from January to September this year, China only bought 3.39 million tonnes of palm oil from Malaysia, 19 per cent less than last year’s 3.95 million tonnes.
When asked on China’s palm oil demand for the rest of the year, Ng replied, “it’s likely to end at around 5.7 million tonnes, as brisk shipments are starting to pick up in preparation of the Lunar New Year in February 2013″.
He explained that China’s palm oil purchase in the last three years were below six million tonnes as local soyabean farmers enjoyed good harvest and the government thus slowed down on palm oil imports.
He also said China had, in the last few years, been importing more soyabeans instead of soyaoil becau-se local livestock farmers demanded more soyameal to feed their pig, cattle, dairy and poultry farms.
“Soyameal demand in China has reached its peak and we think it will start to taper next year. So, instead of importing more soyabeans, we hope to see more purchase of palm oil … perhaps six million tonnes,” Ng said.
Asked on implication of China government’s tighter controls on blending of palm olein with other imports of vegetable oils for the retail market, which will come into effect from January, Ng said since palm oil is mainly used by food processors and the baking community, and is “classified as industrial use”, it is not likely to have too big of an impact”.
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China to tighten import quality of vegetable oils
KUALA LUMPUR: In the news article titled “China’s palm oil imports likely to touch 6m tonnes”, Malaysian Palm Oil Council regional manager for China market Desmond Ng clarified that from January 2013, China is tightening control on the quality of vegetable oils imports.
The new rules do not mention blending of palm olein with other vegetable oils.
He said palm oil shipments from Malaysia are likely to qualify quarantine rules imposed on the quality of vegetable oil imports into China as long as they meet refiners’ specifications at the seaports.
Report on palm oil tax policy flip-flop ‘mischievous’
“I don’t know who said that, it’s not me,” the minister retorted, when asked if the government may have changed its mind and decided to carry on issuing duty-free CPO (crude palm oil) export quotas after December.
Dompok, who was clearly irate over the confusion and undue anxiety the news report had caused among vegetable oil traders, said the unidentified person who claimed that Malaysia had a policy reversal “is mischievous”.
“We stick to what we have announced. There’s no deviation,” Dompok told Business Times on the sidelines of the Palm Oil Trade Fair and Seminar (POTS) 2012, organised by the Malaysian Palm Oil Council, here, yesterday.
The minister once again confirmed that Malaysia will adopt a flexible CPO export tax structure that mimics Indonesia’s from January 1. Malaysia will also abolish duty-free CPO export quota.
The new CPO export duty will fluctuate on a monthly basis, between 4.5 per cent to 8.5 per cent, from 23 per cent currently. If palm oil price hovers between RM2,250 and RM2,400 a tonne, the tax is 4.5 per cent. And if the palm oil prices were to jump to RM3,450 per tonne, the tax is 8.5 per cent.
Dompok, while noting refined palm oil will remain tax-free, said the government is committed to ensuring that downstream players have a level playing field and not suffer in the hands of refineries from another country from 2013.
Palm Oil Refiners Association of Malaysia (Poram) chairman, Wan Mohd Zain Wan Ismail, who was also at the conference, said the reports suggesting Malaysian plantation companies with overseas refineries had asked the government to reconsider its policies had caused much confusion among traders. “That’s not true, it was mischievous reporting,” he said.
September 11 2011 is a date Poram members will always remember. It was the day the Indonesian government announced its intention to widen the tax gap between crude and refined palm oil.
This made CPO and crude palm kernel oil very cheap for downstream businesses in Indonesia. On top of that, processed palm oil in the form of cooking oil, soaps and detergents shipped out from Indonesian shores are tax free.
The Indonesian government’s move, since October 2011, created an unfair playing field, rendering refiners in Indonesia to reap fat profits while those in Malaysia suffered losses.
It had been more than a year of headache and heartache for Poram members, particularly independent refiners who do not own any estates to balance out their losses.
In protecting its members’ interest, Poram suggested to the Malaysian government to lower the current 23 per cent CPO export tax and do away with duty-free CPO. It suggested that by mirroring the tax margin between Indonesia’s CPO and refined palm oil, Malaysia’s refiners can at least stand a chance to compete based on existing infrastructure and plant efficiency.
Mielke sees prices rising to RM3,300
As some 800-odd participants settled in at the grand ballroom of a hotel here, Hamburg-based ISTA Mielke GmbH executive director Thomas Mielke lifted the mood in the hall when he said consumers around the world are becoming more dependent on palm oil due to insufficient production of other oils and fats.
He went on to say that he expects global demand for palm oil to pick up as the wide discount to soya oil, of more than US$300 (RM918) per tonne, is not sustainable. “We are going to see more global demand shifting to palm oil as there is considerable shortage in soft oils,” he said.
Seven months ago, at the Palm and Lauric Oils Conference & Exhibition: Price Outlook 2012/2013 (POC 2012), Mielke predicted that Malaysia’s palm oil supply would hit a record high of 19.3 million tonnes. Yesterday, however, he trimmed his forecast to 18.5 million tonnes, two per cent less than last year’s 18.9 million tonnes.
As for Indonesia, he maintained his forecast that output will expand to 25.5 million tonnes.
Mielke, who is also editor of Oil World journal, stressed that the oil-palm industry must continue its focus on yield improvement as a way to overcome limitations of arable land and water, so as to retain world market leadership.
“I think palm oil output will not be enough to offset shortage in soya and rape seed oils,” he said.
Mielke, a well-respected and authoritative vegetable oil analyst, once again rejected calls by green activists for a moratorium on oil palm plantings. “In order to satisfy the daily oils and fats needs of a growing world population, farmers need to speed up on their oil palm plantings. The world continues to face shortage of edible oils,” he added.
Yesterday, the third month benchmark palm oil futures on the Malaysian Derivatives Exchange fell RM4 to close at RM2,466 per tonne.
In conclusion, Mielke said palm oil price, “which is only likely to bottom out at the end of the year, is likely to rise to RM3,300 per tonne towards the second quarter of 2013, as palm oil needs to fill up the shortage of soft oils in the world”.
Jupiter Securities chief market strategist Benny Lee Wan Yu, who was bullish on palm oil prices last month, moderated his forecast this time. As he took the stage, he said palm oil is currently oversold. While he cautioned that palm oil could settle further to RM2,230 per tonne, he decided to maintain a positive outlook that prices are likely to rebound to between RM2,650 and RM2,800 per tonne by the end of the year.
LMC International Ltd chairman Dr James Fry was next to present his opinions. He reiterated his long-held view that palm oil prices would continue to be highly influenced by petroleum prices.
“When vegetable oil prices approach that of petroleum, biodiesel production and direct burning of vegetable oils become increasingly attractive options. This creates a floor price,” he said.
Fry, while refraining from giving a price forecast, anticipated that some of Malaysia’s 2.5 million tonnes of palm oil stocks will level off in two months as biodiesel consumption picks up.
Malaysia’s Plantation Industries and Commodities Minister Tan Sri Bernard Dompok had announced that the government will, from January onwards, adopt a flexible crude palm oil (CPO) export tax structure that mimics that of Indonesia’s and, at the same time, also abolish duty-free CPO export quota.
Godrej International director Dorab Mistry struck a sobering chord among the audience when he said the new palm oil tax regime will not clear away high inventories at Malaysia’s refineries and mills. “The current situation is brought on by strong production, flat demand and collapsing biodiesel consumption. To reduce stocks, Malaysia must endure short-term pain to enjoy long-term gain. The cure for low prices is lower prices,” he said.
In calling himself a lifelong friend of the Malaysian palm oil industry, Dorab said Malaysia should remove all palm oil taxes and quotas so that palm oil prices can begin to stimulate robust demand at a lower level of RM2,200 per tonne. At this level, which Dorab said is not oppressive, planters can still make decent profits.
Malaysian palm oil exports to fall 10pc
“There will be a shortfall from last year’s since palm oil prices have fallen,” said Plantation Industries and Commodities Minister Tan Sri Bernard Dompok.
In the first nine months of this year, the Malaysian Palm Oil Board (MPOB) reported that the country had shipped out RM53.98 billion worth of palm oil products.
Since October 2011, the Indonesian government had widened the export tax gap between crude palm oil (CPO) export and refined products drastically to boost refining capacity and downstream activities. As a result, crude palm oil and crude palm kernel oil prices had been on a downtrend.
The minister was speaking to reporters at the Palm Oil Trade Seminar (POTS) Kuala Lumpur organised by the Malaysian Palm Oil Council (MPOC) here yesterday. Also present at the press conference was MPOC chairman Datuk Lee Yeow Chor.
MPOB numbers also revealed that Malaysia’s palm oil stock level for September stood at 2.48 million tonnes. Dompok assured traders that they should not be too worried of overcapacity talks because the country has storage levels of up to five million tonnes.
On export trends, it is interesting to note that in the first nine months of this year, MPOB data showed that India bought 1.84 million tonnes of palm oil from Malaysia, 60 per cent more than last year’s 1.15 million tonnes.
Dompok acknowledged that the higher shipment of CPO to India is very much facilitated by policy changes by both the Indian and Malaysian government three months ago.
Since July, India, which imports more than half of its total vegetable oil consumption of about 16 million tonnes a year, ended a six-year freeze on the base import price of refined palm olein, allowing easier imports of CPO.
At the same time, in Malaysia, Dompok also raised the allocation for duty-free CPO exports by another two million tonnes bumping up the yearly quota to a record high of five million tonnes.
When met at the conference, India’s Solvent Extractors’ Association executive director Dr B.V. Mehta said: “My country imports 7.5 million tonnes of palm oil in a year from Indonesia and Malaysia. Out of that total, 6.5 million tonnes are in the form of CPO. “Currently, it’s definitely much cheaper to import CPO from Malaysia than Indonesia.”
Malaysia’s biggest palm oil client is China. As the largest vegetable oil consumer in the world, China’s palm oil usage makes up 15 per cent of global consumption. Palm oil is the second most consumed there after soyaoil.
In the last few years, China has started to import more soyabeans instead of soyaoil. This is because the Chinese government wants more crushing activities domestically and more soyameal to feed its pig, cattle, dairy and poultry farms.
In the first nine months of this year, China only bought 3.39 million tonnes of palm oil from Malaysia, 19 per cent less than last year’s 3.95 million tonnes.
MPOC’s Lee commented that China had bought less palm oil as it had wanted to balance its vegetable oil import profile. “Apart from the negative impact of slower economic growth rate in China, the Chinese government is also looking to balance their imports of palm with that of soyaoil,” he said.
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Smallholders to get lion’s share of allocation
KUALA LUMPUR: The government is allocating more than RM600 million for the palm oil sector under the 2013 Budget, a senior minister said. The bulk of it, or RM432 million, will go to independent smallholders to embark on new plantings and replanting of their unproductive oil palm trees.
“The RM400-odd million allocation is expected to benefit some 170,000 independent smallholders in the country. These are farmers who own 40 hectares or less …they are eligible for the replanting grant,” said Minister in the Prime Minister’s Department Datuk Seri Idris Jala, who is also chief executive of the Performance Management and Delivery Unit (Pemandu).
He added that the allocation works out to RM7,500 a hectare for oil palm land in Peninsular Malaysia and RM9,000 a hectare in Sabah and Sarawak. There is also the RM500 in subsistence allowance to farmers whose income is solely dependent on oil palms.
Idris was speaking to reporters at the Palm Oil Trade Seminar (POTS) Kuala Lumpur organised by the Malaysian Palm Oil Council (MPOC) here yesterday.
As for new plantings, Idris said the incentive is only given to those who own up to 5ha in Peninsular Malaysia and a maximum of 7ha for those in Sabah and Sarawak.
He said the 2013 Budget also proposes just over RM200 million as a continuation of the government’s commitment to incentivise integrated plantation firms to move further downstream.
Of that total, RM127 million will be channelled for the development of oleochemical derivatives towards higher production of value added detergent, lubricants and bio-plastics.
The remaining RM75 million will be used to incentivise further investment in pharmaceuticals and nutraceuticals such as premium cooking oils.
Levelling the playing field
KUALA LUMPUR: Palm oil prices yesterday fell RM23 to close at RM2,500 per tonne as traders take heed that Malaysia will only adopt the new crude palm oil (CPO) tax regime and do away with duty-free export quotas from January 2013 onwards.
For the past week, palm oil price recovered from a low of RM2,255 per tonne when news reports of a possible cut in CPO tax first emerged.
Yesterday, Plantation Industries and Commodities Minister Tan Sri Bernard Dompok announced the Cabinet has decided to adopt a flexible CPO export tax structure that mimics that of Indonesia’s. At the same time, Malaysia will also abolish duty-free CPO export quota.
“We want to create a situation to ensure that downstream players in Malaysia have a level playing field and they won’t suffer in the hands of refineries from another country,” he told reporters after the launch of the Malaysia Cocoa and Chocolate Day here yesterday.
He explained that the new CPO export duty will fluctuate on a monthly basis, between 4.5 per cent to 8.5 per cent, from 23 per cent currently.
“If palm oil price hovers between RM2,250 to RM2,400 a tonne, the tax is 4.5 per cent. And if palm oil price were to jump to RM3,450 per tonne, the tax is 8.5 per cent,” the minister said.
He also confirmed that refined palm oil will remain tax-free.
In addition to this measure, Dompok said, his ministry is in consultation with relevant parties to assess the viability of implementing the B10 Programme (blending of 10 per cent palm biodiesel with petroleum diesel) for the unsubsidised sector.
“This measure could increase the consumption of CPO by another 300,000 tonnes a year,” he said.
Currently, the B5 Programme (blending of 5 per cent palm biodiesel and 95 per cent of petroleum diesel) is ongoing in the central region covering Selangor, Malacca, Negeri Sembilan and the Federal Territories of Kuala Lumpur and Putrajaya; consuming some 112,000 tonnes of CPO annually.
Dompok also said that the government is committed in its ongoing efforts to incentivise replanting of old and unproductive oil palm trees. It was estimated that the replanting of 100,000ha will reduce CPO supply by 300,000 tonnes.
“We will continue with measures to ensure the growers receive remunerative income. The smallholding sector accounts for 40 per cent of five million hectares of oil palm in the country,” he said.
Green Ocean shares jump most in six months
KUALA LUMPUR: Green Ocean Corp Bhd’s shares jumped by over 16 per cent yesterday, its highest in more than six months.
The company, a premium cooking oil exporter, saw its shares on Bursa Malaysia close 16.67 per cent higher at 31.5 sen, with more than 15.7 million shares traded. Green Ocean was one of the top 10 active stocks yesterday. It was also the highest closing since March.
“I’m not sure why the shares moved up or who bought the shares. According to normal procedures, we will only know (the buyers’ details) three days later,” said Green Ocean Corp managing director Lee Byoung Jin.
While Lee is unsure of the renewed interest, brokers said that the buying interests may be due to investors’ expectations that the company may post an improved quarterly financial results for the quarter ended September 30 2012.
The company, which had been bleeding losses for four years, is banking on the Novelin technology to get back to profitability. Malaysian Palm Oil Board developed the technology and Green Ocean pays the board a royalty for a 20-year exclusive use.
The Novelin technology allows Green Ocean to produce palm cooking oil which has cold stability at 0°C, which means it remains liquid and clear in cold temperature. Regular palm-based cooking oil tend to become jelly-like and cloudy at about 24°C, rendering it not popular among retail clients during winter.
It was reported that the company is targeting a net profit of RM2.5 million for the financial year ending March 31 2013 and RM15-20 million net profit for the financial year ending March 31 2014.
However, the management clarified that the target is achievable provided it signed a supply and production deal with a conglomerate. In February, Green Ocean told Bursa Malaysia that it was still in talks with the conglomerate. To date, no agreement has been signed.
Green light for CPO export tax cut
CPO prices had been on the downtrend for months but three weeks ago, it suddenly plunged. On October 2, palm oil posted its biggest loss in nearly three years. It tumbled nine per cent to RM2,255 per tonne – its steepest daily drop since the 2008 financial crisis.
But since news reports of a possible cut in CPO tax surfaced a week ago, palm oil prices had risen and started to stabilise at around RM2,400 per tonne.
Yesterday, the third-month benchmark CPO futures traded RM19 higher to close at RM2,457 per tonne.
“The Cabinet has approved the lowering of the CPO tax, but we’ve not decided on the quantum,” Dompok said, suggesting that it might be known tomorrow.
He was speaking to reporters after officiating at the opening of the International Rubber Technology and Economic Congress 2012 here yesterday.
Palm Oil Refiners Association of Malaysia (Poram) had proposed to the government to lower the CPO export tax to between eight and 10 per cent and do away with duty-free CPO.
The association suggested that by mirroring the tax margin between Indonesia’s CPO and refined palm oil, Malaysia’s refiners can at least stand a chance to compete based on existing infrastructure and plant efficiency.
Oil palm planters, while admitting the lowering of the 23 per cent CPO tax would allow refiners be more competitive, said a more practical rate is between four and five per cent. “The proposed rate of between eight to 10 per cent is still prohibitive. If the CPO tax rate is lowered to between four and five per cent, it is still bearable for planters,” a Sabah-based planter reportedly said.
To a query if the government plans to do away with duty-free CPO, Dompok said: “I’m aware that Poram’s request is a two-pronged mechanism. All these details will be discussed this Friday.”
Yesterday, Malaysian Palm Oil Board reported that September palm oil stocks rose 17 per cent to 2.48 million tonnes from 2.11 million tonnes in August.
In response, Dompok said both Indonesia and Malaysia, the world’s two biggest palm oil producers, are seeking to support prices by reducing stocks through more domestic usage of the commodity. “We want to create more domestic demand for CPO by extending biodiesel usage nationwide. Currently, the B5 mandate only covers petrol stations in the central states of Peninsular Malaysia,” he said.
B5 is a blend of 95 per cent regular diesel with 5 per cent palm biodiesel.
“When the B5 mandate is extended nationwide, the production of biodiesel will take up about 500,000 tonnes of palm oil. This will help to considerably reduce the current high palm oil stock level,” he said.
“The government has, so far, spent more than RM50 million to pay for the blending facilities at petroleum companies’ depots. We hope to extend this initiative to all 36 fuel depots nationwide by year-end,” he added.
Indonesia, Malaysia to stem falling palm oil prices
Malaysia and Indonesia together account for about 90 per cent of the global palm oil supplies, of around 40 million tonnes.
Trade and commodities ministers discussed bilateral proposals for palm oil at a meeting on Monday, and floated the idea of limiting plantation expansion and stepping up industry and biofuel use.
Although no decisions have yet been made, Indonesia’s Trade Minister Gita Wirjawan said future cooperation would be similar to that already in place for the region’s rubber industry.
“We will sit together to discuss our action to drive the palm oil price,” Gita told reporters yesterday. We are looking for bilateral cooperation on this issue. It may be similar to what we have done on rubber.”
The International Tripartite Rubber Corp (ITRC) and the International Rubber Consortium (IRCo), which groups senior government officials from top producers Malaysia, Thailand and Indonesia, meet regularly to discuss how to help the industry.
Benchmark Malaysian palm oil futures edged up yesterday to close at RM2,438 per tonne, supported by the prospect of a possible export tax change in Malaysia, after having slipped to a near three-year low of RM2,255 per tonne last week on concerns over rising stocks and slowing demand.
One analyst was sceptical on how far the two countries would cooperate, since they have to compete for customers. “I’m in two minds about this,” said Abah Ofon, a commodities analyst at Standard Chartered in Singapore. If they do come together in a genuine fashion to get more involved in the market, it’s going to be a tad more effective than what happened with the rubber industry.”
Attempts to boost rubber prices by the three top producers are often fragmented because the issue is very political in Thailand, while Malaysia is a small producer even though it is a leading consumer.
“Even in the short-term, if they do decide to have a stranglehold on the market, they can,” added Ofon. “But I’m not entirely sure about how well they can cooperate, given the fact that they are competing markets.”
Indonesia moved last year to cut export tariffs on refined palm oil, boosting margins for domestic processors and undercutting downstream competitors in Malaysia and buyers in India.
Late last week, Malaysia delayed a decision on a proposal to cut crude palm oil export taxes to between 8 and 10 per cent from 23 per cent.
Both countries say working together on joint palm oil export-tax proposals is not on the agenda, but that both governments are due to meet for further talks within two weeks.
“There are several options for Indonesia-Malaysia palm oil cooperation,” added Deddy Saleh, director general of foreign trade at the Indonesian trade ministry. We can implement plantation replanting for old oil palm trees,” he said. “We also can increase biofuel usage through government subsidies.”
FGV plans Philippine venture after peace deal
The Philippine government and Moro Islamic Liberation Front rebels agreed on Sunday on a pact to end 40 years of conflict in the impoverished southern region of Mindanao.
Officials have cautioned that the deal is only a first step as the two sides need to thrash out details on the scope and powers of a new autonomous region.
Conflict-wracked Mindanao has the most suitable land in the Philippines for oil palms, said Datuk Sabri Ahmad, chief executive officer of cash-rich FGV.
“We will go there for oil palms,” he said here yesterday. “There is ample area for oil palms to meet strong local demand,” he added.
Felda Global had a US$3.1 billion (RM9.52 billion) listing earlier this year, at the time the largest in the world after Facebook’s IPO, and had said it planned to use the funds to expand in Southeast Asia and Africa.
The fighting in Mindanao has deterred any widespread foreign investment in the agriculture and mineral-rich region.
Despite the natural resources, the Philippines imports more than 500,000 tonnes of crude palm oil a year to meet strong local demand for the product, used mostly for cooking.
While Sabri did not give an estimate for how many hectares Felda Global was looking to develop, he said plantation companies would need to invest in at least 10,000ha to gain economies of scale. “We would have to look at building up the infrastructure. It will have to be a holistic approach,” he said.
Mindanao has about one million hectares of grasslands, equivalent to the size of Puerto Rico, that can be turned into oil palm estates, the Philippines Palm Oil Development Council (PPDCI) has estimated.
The southern Philippines could become the next destination for land-hungry companies like Malaysia’s Sime Darby and Singapore-listed Wilmar, which have struggled with environmental restrictions in top palm oil producer Indonesia and harsh weather conditions in Africa.
Bankers await details on ‘Agrosukuk’
In the 2013 Budget, tabled a couple of weeks back, Prime Minister and Finance Minister Datuk Seri Najib Razak detailed a number of steps to stimulate and strengthen the country’s capital markets.
These include tax breaks, the creation of retail bonds and an additional RM400 million allocation to state-owned guarantee agency Danajamin Nasional.
It is, however, the promise of Islamic bonds from the agricultural sector that has had the markets buzzing.
Najib announced that the Securities Commission (SC) will create a framework to allow agriculture companies to issue special sukuk. Under the framework, expenses incurred in the so-called “Agrosukuk” deals will receive double tax deduction over the four tax years from 2012 to 2015.
While the idea was promising, local debt bankers said they were yet to grasp fully what it involves.
“To be frank, we are in the dark. My sense is that the SC itself has not finalised any details on this Agrosukuk and only the Islamic division at the SC seems to be aware of this new instrument,” said one head of debt origination. It is at such a preliminary stage that we are surprised that the PM decided to announce it.”
“The government is trying to focus on the agriculture sector, following the listing of Felda Global Ventures Holdings Bhd, but, again, the devil is in the details. How will it work?” asked one foreign banker.
Seen against the entire budget, it may make a little more sense why the agricultural sector has been singled out. For instance, RM5.8 billion is being allocated to the Ministry of Agriculture and Agro-based Industry.
Bankers, however, believe the government will need to provide more than just tax incentives to encourage these potential issuers to come to the capital markets. “The big agricultural or plantation companies, such as IOI and KL Kepong, have ready access to not only the sukuk markets, but also to bank lending,” said a banker.
“However, apart from these companies, which are rated at least Double A, not many others will be able to access the markets, given investors’ aversion to anything rated below that. There is a bit of disconnect there, since the tax incentive will only help the big companies. In the end, I’m not sure how it will benefit the industry as a whole,” he added.
Kertih gets RM2b biotech factory
The Terengganu government has allocated 30,000ha to grow “Petai Belalang” trees so as to produce 10.5 million tonnes of wood chips annually as feedstock for the factory, a government official said.
With the addition of a convenient supply of ammonia from Petronas’ refinery in Kertih and a host of other perks, this has helped to convince the two firms to embark on the fermentation venture.
“It was a case of choosing between Thailand and Malaysia,” the government official noted.
Many cynical observers say profitability of the fermentation business depends on the cost of glucose, which is the main growth medium for the bacteria in the biological process.
The government official admitted there is not much sugarcane here but he highlighted there is access to the government’s platform of long-term imports of raw sugar. “Also, there are other factors like a steady supply of feedstock biomass and ammonia gas from Petronas’ Kertih refinery,” he said.
Over the weekend, Prime Minister Datuk Seri Najib Razak officiated at the groundbreaking ceremony for the plant at the Kertih Biopolymer Park, which is poised to be the world’s first bio-methionine and thiochemicals integrated facility.
Also present were Terengganu Menteri Besar Datuk Seri Ahmad Said, Arkema executive vice-president Marc Schuller, East Coast Economic Region Development Council (ECER) chief executive officer Datuk Jebasingam Issace John and Malaysian Biotechnology Corp chief executive officer Datuk Dr Mohd Nazlee Kamal.
The RM2 billion plant is expected to churn out 80,000 tonnes of bio-methionine a year from 2014. Bio-methionine is mainly used in animal feed to promote growth of poultry and livestock, shorten feeding cycle and increase the quantity of lean meat.
There is every reason for Malaysia to support this initiative, the government official said, as this is the world’s first in producing animal feed additives from biological processes at competitive pricing. The biotechnology project is expected to generate accumulative gross national income of RM20.4 billion by 2020 and create 2,500 green jobs for Malaysia.
On whether bio-methionine is able to compete favourably with the performance and cost of DL-methionine made from chemical processes, the government official said: “Yes, bio-methionine is digested more efficiently by animals than DL-methionine. Also, the bio-fermentation process used by CJ CheilJedang is flexible enough to use different biomass feedstocks, such as from woodchips to oil palm empty fruit bunches.”
Arkema has extensive know-how and experience in the production process of methyl mercaptan, a sulfur-based intermediate that is key to the manufacture of bio-methionine.
In an interview with Business Times, CJ CheilJedang president and chief executive officer Kim Chul Ha said the group chose to set up its plant in Terengganu as there is a secure supply of woodchips, the competitive cost of utilities, tax incentives and a good infrastructure set-up. There is also respect for private property and intellectual property rights.
The bio-methionine plant is strategic for CJ CheilJedang, Kim said, because it will be the first and only company in the world to supply customers globally with the four major amino acids – the building blocks of proteins used for animal feed – from bio-fermentation processes, including L-lysine, L-threonine, L-tryptophan, and now L-methionine.
Arkema’s Schuller said: “This joint venture enables Arkema to establish the first thiochemicals industrial facility in Asia. In the near future, we will manufacture other high value added thiochemicals in addition to methyl mercaptan.”
KL Kepong expands into Papua New Guinea
In its filing to Bursa Malaysia yesterday, the group said it is planning to buy a company that has leasehold rights over 44,342 hectares of agriculture land there.
KLK is expected to pay US$8.7 million (or RM27 million) to Hii Eii Sing, a Malaysian national, to secure 51 per cent control of Collingwood Plantations Pte Ltd.
KLK has so far planted up around 205,000ha in Malaysia and Indonesia. The plantation business make up some 75 per cent of the group’s profits.
When contacted yesterday, KLK plantations director Roy Lim Kiam Chye said: “It’s a greenfield venture. If and when this deal completes in the first quarter of 2013, it’ll bump up our plantation landbank by 20 per cent to around 290,000ha.”
Bursa soars on govt plan to cut CPO export tax
The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) advanced 11.72 points to a record high of 1,661.47.
The index moved between the 1,649.66 and 1,662.14 levels throughout the day, dealers said, adding that the solid showing was in line with steadier regional markets.
CPO prices had been on the downtrend in the last six months but in the last three weeks, it suddenly plunged.
Three days ago, palm oil suffered its biggest loss in nearly three years. It tumbled 9 per cent to RM2,255 per tonne – its steepest daily drop since the 2008 financial crisis.
But since news reports of possible lowering of CPO tax surfaced two days ago, palm oil prices had started to climb a little.
Yesterday, the third-month benchmark crude palm oil futures traded RM1 higher to close at RM2,352 per tonne. Volume totalled 16,317 lots, higher than the usual 12,500 as some traders took up positions ahead of positive news from the government.
Over at the equities market, plantation stocks like Sime Darby, Kuala Lumpur Kepong Bhd and United Plantations Bhd were among top 10 gainers yesterday.
When met at the opening of the Malaysian Timber Council Global Woodmart here yesterday, Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said he prefers the proposal to take effect as soon as possible but it is for the Cabinet to decide.
“We want to reduce stockpiles. The lowering of the CPO tax, if approved by the Cabinet, will help boost CPO exports. Hopefully, this will help stabilise falling prices,” he said.
Oil palm planters, while admitting the lowering of the 23 per cent CPO tax will allow refiners be more competitive, said a more practical rate is between 4 and 5 per cent.
“The proposed rate of between 8 to 10 per cent is still prohibitive. If the CPO tax rate is lowered to between 4 and 5 per cent, it is still bearable for planters,” a Sabah-based planter grudgingly said.
“Over here, we’ve to sell our fruits at huge discounts to millers compared to planters in Peninsular Malaysia. Apart from paying corporate tax to the federal government, we also have to pay sales tax to the Sabah government,” he told Business Times via phone interview.
Separately, an oil palm planter in the Peninsular concurred that the lowering of CPO tax to between 4 and 5 per cent is a more realistic option.
“The proposed reduction in CPO tax to between 8per cent and 10 per cent is still too prohibitive. At between 4 and 5 per cent, the problem can be realistically tackled in two prongs. First, producers can still bear the burden and second, it’ll facilitate some CPO exports,” he said.
“These are short-term solutions as longer term excess refining capacity in Indonesia will reduce their competitiveness,” he added.
Currently, oil palm planters in the Peninsular pay windfall tax when CPO price exceeds RM2,500 per tonne in the cash market. Planters in Sabah and Sarawak pay that tax when the price surpasses RM3,000 per tonne.
The planter suggests that the government abolish the current punitive windfall tax and have the proceeds of the CPO tax to subsidise cooking oil instead.
Malaysia to slash CPO export tax
Bangi, Selangor: THE government plans to slash crude palm oil (CPO) tax to match the margin between crude and refined oil with that of Indonesia so that refiners here are better able to compete with rivals there.
Indonesia and Malaysia are the world’s top two CPO producers respectively.
Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said he will present to the Cabinet a proposal tomorrow to lower the CPO export tax to between eight and 10 per cent from the current 23 per cent.
“I think this will put us in a very much competitive position as the margin between crude and refined (palm oil) will match the 13.5 per cent tax gap in Indonesia,” he said at the ministry’s get-together with the media here yesterday.
In the last three weeks, CPO prices had plunged to below RM2,300 a tonne, its lowest in a year.
To stem falling prices, Dompok said the reduction of the CPO tax should make it easier for refiners in Malaysia to become more competitive in the market.
When the tax gap between crude and refined palm oil in Malaysia matches that of Indonesia, refiners here would stand a better chance to buy up more of the commodity and reduce the current high stock levels in the country.
As refining activities pick up, players would be able to reap economies of scale and make some money to stay in the business.
The minister also noted that for this move to be effective, there has to be curbing exports of duty-free CPO as well. “Out of the quota of five million tonnes of duty free CPO we’ve allowed to be exported, only half has been utilised. I want the companies which have not used up their quotas to surrender back the approved permits,” he added.
RM815m green loans approved
“After a series of dialogue with Bank Negara and my agencies, bankers are becoming more familiar and comfortable about funding green businesses,” he said. “Banks are approving green loans a lot faster, from over a year to two months,” he added.
Chin said the recently-announced 2013 Budget has raised the target of the Green Technology Financing Scheme by another RM2 billion to RM3.5 billion.
“The implementation deadline has also been extended until the end of 2015,” he said.
The Green Technology Financing Scheme, established two years ago, seeks to encourage supply and usage of green technologies.
The scheme benefits companies which are producers (up to RM50 million for 15 years) and users (up to RM10 million for 10 years) of green technologies.
Under the scheme, the government bears 2 per cent of the total interest/profit rate and guarantee 60 per cent of the green loan via Credit Guarantee Corporation Malaysia Bhd, with the remaining 40 per cent financing risk borne by banks.
The minister was speaking to reporters at the media sneak preview of the International Greentech and Eco Products Exhibition and Conference Malaysia (iGEM) 2012 here yesterday. The iGEM 2012 will be held on October 10 and 11 at the Kuala Lumpur Convention Centre.
Also present at the event was Malaysian Green Technology Corp acting chief executive officer Ahmad Zairin Ismail. He said 20 banks have approved green loans amounting to RM815 million to 67 projects ranging from renewable energy, industrial waste water recycling and production of bio-plastics.
“Out of the 67, eight projects are related to the oil palm industry where palm oil millers put up biomass and biogas plants to generate renewable energy,” he added.
Budget boon for smallholders
PUTRAJAYA: THE RM432 million allocation for independent smallholders to embark on new plantings and replanting of their unproductive oil palm trees will have a big impact on the palm oil industry.
Deputy Plantation Industries and Commodities Minister Datuk Hamzah Zainuddin said the allocation would help generate and transform the palm oil industry, which is divided into upstream and downstream activities.
“With this allocation, the ministry will be able to use it to strategise and raise palm oil yield,” he said after flagging off the ministry’s Walk for Health event yesterday which saw the participation of some 7,000 people.
Hamzah said the price of the commodity in the global market had seen a slight decline due to several factors.
“One of the reasons is the slow economic growth in Europe, while in America, soy production and demand for soy oil has increased, causing a drop in the demand for palm oil.
“However, the demand for cooking oil will see an increase towards the year-end because of the festive celebrations, especially Deepavali and Christmas. So, these will be the push factors for increasing palm oil prices in the market.”
During the tabling of the 2013 Budget on Friday, Prime Minister Datuk Seri Najib Razak had proposed a RM432 million allocation for independent smallholders to embark on new plantings and replanting of their unproductive palm trees.
The allocation under the Budget works out to be RM7,500 a hectare for oil palm land in Peninsular Malaysia and RM9,000 a hectare in Sabah and Sarawak. According to the Malaysian Palm Oil Board, there are around 170,000 independent smallholders in Malaysia. With 700,000ha, they account for 14 per cent of the country’s five million hectares of oil palm land.
This government subsidy to help smallholders to replant is meant to raise the annual national oil yield, which has been stagnating at below four tonnes a hectare over the last two decades. It is hoped that by 2020, the annual fresh fruit bunch yield would improve to 26.2 tonnes a hectare from 21 tonnes currently.
The RM432 million allocation is expected to benefit some 170,000 independent smallholders in the country and those who own 40ha or less are eligible for the replanting grant.
As for new plantings, the incentive can only be accorded to those who own up to 5ha in Peninsular Malaysia and a maximum of 7ha for those in Sabah and Sarawak.
The 2013 Budget also proposes RM127 million allocation for the development of high-value oleochemical derivatives to transform the downstream industry towards higher production of value added detergent, lubricants and bio-plastics. Basically, this is a continuation of the government’s commitment to incentivise integrated plantation firms to move further downstream.
Cooking oil is a price-controlled item. In order to cap retail price at RM2.50 a kg, the government is maintaining its annual subsidy for this staple cooking ingredient at RM1.5 billion.
Southern Acids strikes cautiously optimistic note
Since August 2011, the Indonesian government has raised palm oil export taxes drastically to boost refining capacity and downstream activities there.
“With cheaper feedstock available to Indonesia’s oleochemical producers, the playing field is no longer level,” said chairman Tan Sri Low Boon Eng.
“Our oleochemical manufacturing business here suffered substantial margin erosion,” he said after the company’s shareholders’ meeting here yesterday.
Southern Acids operates a 100,000-tonne-a-year oleochemical plant in Kapar, Klang. Its products are mainly exported to Europe, East Asia and South Asia.
Last month, the Palm Oil Refiners Association of Malaysia (Poram) highlighted that the Malaysian government, in allowing five million tonnes of duty-free crude palm oil exports and remaining indifferent towards the plight of palm oil refiners here, had risked the loss of further investment and talent in its oleochemical, specialty fats and biodiesel sectors.
Poram said the government’s indecision for the past 12 months had eroded investors’ confidence to further value add Malaysia’s palm oil downstream sector. This also meant opportunity loss in retaining and attracting highly-skilled knowledge workers.
Low concurred with Poram that the government needs to take a more discerning approach. “The government must do something about the current situation. It has been more than a year already,” he said.
Southern Acids, via PT Mustika Agro Sari and PT Wanasari Nusantara, has 7,870ha of oil palm plantations in Indonesia.
Low noted the Indonesia’s palm oil tax restructure, in encouraging downstream investment there, had pulled down palm oil prices. “So, our oil palm plantation and milling business had to contend with lower selling prices,” he said.
Despite operating in challenging circumstances caused by the restructure of Indonesian palm oil taxes, Low said the group is cautiously optimistic of remaining profitable in the current year ending March 2013. “We’ll continue to focus on our Indonesian operations. So far, we’ve planted up around 4,700ha. We’ll continue to embark on new planting and replanting in Riau,” he said.
Palm oil prices sizeably undervalued, says Mielke
“Palm oil is offered at discounts of more than US$250 (per tonne) under soyabean oil. I think this is not sustainable. We are going to see world import demand to shift to the more effectively priced palm oil,” said Thomas Mielke, editor of Hamburg-based newsletter Oil World.
The increased demand will help the world’s top two palm oil producers – Indonesia and Malaysia – raise exports and trim inventory that has been depressing palm oil prices, Mielke said in his video presentation to the Globoil India conference here.
On Friday, benchmark palm oil futures on Bursa Malaysia Derivatives lost 2 per cent to close at RM2,763 a tonne, after hitting an 11-month low of RM2,755 earlier in the day.
World production of palm oil is likely to rise to a record high of 54.4 million tonnes in 2013 from 51.6 million tonnes estimated for 2012, Mielke added. Output could rise to 78 million tonnes in 2020 as higher profitability is bringing in additional plantation, he said.
Global output of sunflower oil in the 2012/13 year starting from October 1 is likely to fall by 1.2 million tonnes, and that should give it a price premium over rival soyaoil in the second half of the year, Mielke said.
CBOT soyabean futures hit an all-time high of US$17.94-3/4 a bushel this month, but have since fallen nearly seven per cent as farmers in the US hastened harvesting of their new season crop. However, that crop is likely to be used up quickly due to higher prices and that will again create tight supplies, allowing prices to resume their rally, Mielke said, without giving any time frame.
“Soyabean prices will resume their rally, exceeding US$18 a bushel, probably rising to US$19 or US$20 or above if any problems occur in South America,” he said. Sowing has been progressing in South America, where output was hit by a severe drought last year.
CBOT November soyabeans finished 0.2 per cent higher at US$16.21-3/4 a bushel on Friday.
However, Dorab Mistry, director at Godrej International Ltd, said palm oil, the world’s most-used cooking oil, is poised to tumble to a two-year low as inventories surge in Indonesia and Malaysia, the biggest producers, and a global economic slowdown curbs demand.
Palm oil, used in everything from chocolate to detergent, has fallen 8.5 per cent this month as demand slowed from importers including China and the EU, and stockpiles surged because of a seasonal increase in production. Falling prices may reduce revenues for producers including Sime Darby Bhd and IOI Corp Bhd and help cap rises in global food costs.
“Demand for palm oil in particular, and for vegetable oils in general has been softer than expected in 2012,” said Mistry, who has traded palm oil for over three decades. Demand was hurt by slower growth in the production of biofuels from vegetable oils and a slowdown in economic growth in the developing countries amid high prices, he said.
Futures have fallen 20 per cent since the end of March and are heading for a second straight quarterly decline on concern that a pick-up in production will drive stockpiles in Malaysia and Indonesia to records.
Stockpiles in Malaysia will continue to expand in October, November and December and may reach as high as three million tonnes by January, Mistry said.
Inventories in Indonesia have hovered between 3.5 million tonnes and four million tonnes since 2010 as against popular estimates of 1.5 million tonnes to two million tonnes, he said.
She’s got really soft fingers
Today, Bank Negara organised a media workshop to better engage with business journalists. I was among the 30-odd reporters and editors who had lunch with the central bank governor Tan Sri Zeti Aziz.
Yes, this is the lady whose signature is the most recognised in the country. Her signature is inked on every Ringgit Malaysia currency note from RM1, RM2, RM5, RM10, RM20, RM50 to RM100.
Since 16th July 2012, Bank Negara issued a new series of banknotes. I asked the governor why Bank Negara had kept the oil palm tree motif on the back of the RM50 note since August 2007. She replied that it is distinctively Malaysia and draws inspiration from nature. She also said that the palm oil industry plays an important role in our economy and that quite a few plantation companies are among the Top 20 heavyweights on the stock exchange.
When Zeti was informed that many oil palm planters and Felda settlers are very happy that Bank Negara had kept the oil palm tree motif on the back of the RM50 note, she smiled and nodded. ”I’ll bear that in mind.”
When it is time to say goodbye, I shook hands with her. I must say … for an ‘Iron Lady’ who has a tight grip on our economy, she’s got really soft fingers.
TH Plantations to issue RM1.5b sukuk
Hong Leong Islamic Bank Bhd and RHB Investment Bank Bhd have been appointed as the joint runners for the sukuk Murabahah facility, TH Plantations said in announcement yesterday.
It told the stock market that the bonds would not be rated. Funds raised from the exercise will go towards redeeming TH Plantation’s commodity term financing facilities, financing capital expenditure needs and other corporate expenses.
TH Plantations saw its net profit drop 39 per cent in the first half of the year due to lower production and lower selling prices for crude palm oil (CPO), in line with the lower year-on-year results reported by most plantation companies.
The company recently issued new shares to raise RM536 million to finance an acquisition that would double its land bank. –Reuters
Indonesia’s palm oil exports to stay flat
On the bright side, Fadhil said China remains Indonesia’s third biggest palm oil buyer. “Shipments in the first half of the year accounted for only 45 per cent of Indonesia’s exports. But demand will usually pick up in the second half because there are more festivities and religious events that spur more preparation of fat-laden foods like cookies, chocolate, ice cream and cakes,” he said.
Fadhil was speaking on the sidelines of the Oils and Fats International Congress (OFIC) 2012 held here recently.
Organised by the Malaysian Oil Scientists’ and Technologists’ Association (Mosta) and the Malaysian Palm Oil Board (MPOB), the congress carried the theme “Future of Oils and Fats – Is Smart Partnership the Way Forward?”
Yesterday, the third-month benchmark palm oil prices on the Malaysian Derivatives Exchange traded RM18 lower to close at RM2,912 per tonne.
LMC International chairman Dr James Fry, in presenting his forecast on vegetable oils at the conference, reiterated his long-held view that palm oil prices will continue to be highly influenced by petroleum prices.
“In the first quarter of 2013, palm oil prices could fall further to RM2,450 per tonne if Brent crude dropped to US$80 a barrel,” he said.
“Higher output from the Organisation of Petroleum Exporting Countries, which accounts for one-third of the world’s oil production, and the worsening of the eurozone debt crisis, could continue to be a drag on Brent crude prices,” he said.
On Malaysia’s palm oil output, Fry sees a 3 per cent dip to 18.3 million tonnes this year because of “the legacy of dry conditions in the previous year”.
Palm oil prices likely to hit RM3,200 by year-end
Yesterday, the third-month benchmark palm oil futures on the Malaysian Derivatives Exchange traded RM10 higher to close at RM2,937 a tonne.
“Palm oil prices are more or less going to trade rangebound between RM2,900 and RM3,000 a tonne in the immediate weeks.
“Chartwise, palm oil prices seemed to have bottomed out at RM2,820 a tonne,” he said.
“So far, palm oil is one of the commodities that has not moved up. Gold, petroleum and soyabean have all gone up.
Currently, the trading pattern is very much like that in 2010. Back then, prices went as high as RM3,900 a tonne towards the end of the year,” he said.
However, Lee said this time, prices are not likely to trade as high because of high inventories.
“We see the prices reversing into an uptrend, going as high as RM3,200 by year end and peaking at RM3,400 a tonne in the first quarter of 2013,” he added.
Lee was speaking on the sidelines of the International Palm Oil Sustainability Conference 2012 held here yesterday.
Also present at the conference was Malaysian Palm Oil Council chairman Datuk Lee Yeow Chor.
Cargo surveyor Intertek Agri Services put September 1 to September 10 exports at 453,302 tonnes, an increase of 27 per cent. Another surveyor, SGS, puts exports at 460,939 tonnes, up 30 per cent.
In the first 10 days of this month, crude palm oil exports jumped more than twofolds to 167,663 tonnes. The surveyors’ report said the surge is a result of the government’s recent decision to allow another two million tonnes of tax-free crude palm oil to be exported.
Lee concurred with the cargo surveyors’ findings that palm oil export volume is doing well.
“We expect shipment to pick up in the coming months. There’s strong demand for palm oil from India and Africa,” he said.
When asked on price outlook, Lee replied: “Palm oil is still trading at a wide discount to soya oil of more than US$200 (RM620) a tonne. This price differential has prompted demand for more palm oil and in time, prices should start to rise again.”
Versatile oil in a thriving industry
Many assume that the palm oil industry is just confined to farmers. But it is more than that, he said. Bankers, insurance companies, freight forwarders, cargo surveyors, scientists and engineers are also part of the palm oil supply chain.
Today, Malaysia’s sprawling palm oil industry is employing more talents. The sector entails production of margarine, cooking oil, oleochemicals, transport and storage of palm oil at the ports, palm oil futures trading at brokerages, design and building of refineries and biodiesel plants, animal feeds, vitamin E extraction and even the development of nutrient-enriched cosmetics.
To extract palm oil, Ong explained, the fruit of the palm tree is collected and pressed, yielding a rich, dark-red oil. From there, about 90 per cent of the oil is processed into cooking oil, margarine, chocolate, candy and ice cream.
There are two types of oils that are derived from the palm fruit: Palm oil (which can be in semi-solid form) and palm kernel oil (which is extracted from the fruit kernel).
In palm oil, the liquid portion is called palm olein where it is mostly used as cooking oil. The solid portion, which is known as palm stearin, is a source of natural fat component in shortenings and margarine.
“There are 17 kinds of oils in this world. Palm oil is the most consumed, while competing oil crops grown in cold countries are soyabean, rapeseed and sunflower,” he told Business Times in an interview here recently.
He added that about 55 per cent of people in the world use liquid oil as their main cooking ingredient, whereas the remaining 45 per cent prefer solid fat like butter and ghee.
“What is interesting about palm oil is that it provides both liquid oil and solid fat,” he said. “The benefit of using palm oil in food preparation is that it extends the shelf life of the product and is rich in vitamins,” Ong said.
He explained that unlike the limited vitamin E range in soft oils extracted from soyabean, rapeseed and sunflower, tropical palm oil vitamin E contains tocotrienols which have cholesterol-lowering and anti-cancer properties.
In view of such life-saving attributes, Ong said, medical researchers all over the world are carrying out clinical trials on the usage of palm oil vitamin E in the prevention of degenerative diseases such as cancer and stroke.
“Indeed, palm oil is nature’s gift to Malaysia and Malaysia’s gift to the world,” he added.
Last year, Malaysia reaped RM80 billion in foreign earnings from palm oil exports.
Besides income from exports, the economic significance of palm oil is also seen from nearly a million people directly employed in the estates and another million consider their livelihoods dependent on this industry.
In a separate interview, KL-Kepong Oleochemical managing director A. K. Yeow concurred with Ong on palm oil’s versatility, saying about 10 per cent of its usage goes to the manufacture of oleochemicals.
Oleochemicals are essentially derived from animal and plant fats through the process of fat splitting.
When palm oil is hydrolysed into basic oleochemicals like fatty acids and glycerine, the fatty acids can be further processed into methyl esters and fatty alcohols. These are then processed to make soap, detergent intermediates, cosmetics and even infant formula, he said.
Yeow said many detergent and soap manufacturers choose the slightly expensive oleochemical over petrochemicals because it is sourced from palm kernel oil, a renewable feedstock.
On the global outlook for oleochemicals, he said demand is on the uptrend as rising living standards in emerging economies like China and India prompt more consumption of soaps, detergents and cosmetics.
In giving a bird’s eye view of the industry, Yeow said sectors like logistics, insurance and banking are part of the palm oil supply chain. “You would need people to transport palm oil from the mill to the refinery. When the volume is so big, you’ll need lorry tankers and ships. There are also bulking and storage tanks at the jetties.”
“When you transport the oil from the estate to the seaport, you will need to make sure it gets there safe. This is where the insurance comes in. Apart from that, some people might not have enough cash, that is where bank loans come in,” he said.
Since 2010, stock exchange regulator Bursa Malaysia Bhd has set up Bursa Suq Al-Sila for banks to buy and sell crude palm oil futures to facilitate Islamic finance.
The transactions on Bursa Suq Al-Sila involves an Islamic bank buying crude palm oil from the spot market and then sells it to the borrower. The borrower then sells the crude palm oil to a third party in the spot market for cash, using the bank as its agent, thus securing the financing.
Malaysia, the world’s biggest Islamic bond market, is embarking on more than US$400 billion (RM1.25 billion) decade-long economic development. The government and the private sector leverage on palm oil as the underlying commodity in Islamic finance.
Kuala Lumpur Kepong Bhd (KLK) recently sold RM1 billion of 10-year Islamic bonds. Sime Darby Bhd is planning its first multi-currency Islamic bond programme of as much as US$1.5 billion to raise funds for capital expenditure.
It is anticipated that this year, sales of corporate Islamic bonds that pay returns on assets instead of interest, are approaching a record high. Issuance rose 41 per cent to RM43.2 billion from a year earlier, compared to the all-time high of RM75.6 billion last year.
“So, as you can see, the palm oil industry is not just about planting oil palms. There’re a whole lot of other business activities coming together to make this a thriving industry,” Yeow noted.
Indonesia ready to fight EU claim
European producers have lodged a formal complaint that millions of tonnes of Argentine and Indonesian biodiesel are being dumped on the European Union market.
“We have informed all biodiesel exporters about the case and we have asked them to be cooperative and answer all the questions proposed by EU Commission,” said Deddy Saleh, director general of foreign trade at the trade ministry.
“We have questioned the EU allegation and have asked them to clarify the reasons for it,” he added. “We will fight the allegation if the reasons are not reasonable.”
The head of the European Biodiesel Board (EBB), which represents 75 producers and nearly 80 per cent of European biofuels output, on Thursday said the body was also “actively working” on getting EU emergency procedures imposed.
The EBB said the EU had experienced a surge in Argentine and Indonesian imports, leading to several bankruptcies, forcing European producers to sell below cost and to cut annual production.
From very low levels in 2008, imports from the two countries progressively rose to around 2.5 million tonnes in 2011, or more than 90 per cent of imports into the EU, according to Eurostat and EBB estimates.
“Prices of soyabeans, the raw material, are more expensive in Europe than biodiesel imported from Indonesia and Argentina,” Raffaello Garofalo, EEB secretary general, said on Thursday. “It’s like saying steel costs more than a car. It’s impossible to compete.”
The EBB, citing market sources, said Argentine and Indonesian imports have been sold for between US$60 and US$110 (RM188 and RM344) less than the EU biodiesel, while soyabean oil had sold for around US$100 a tonne more than imported soyabean-based biodiesel.
The European Commission announced in its Official Journal the complaint that Argentinian and Indonesian biodiesel was being sold very cheaply and “thereby causing material injury to the Union industry.”
Palm oil output from Indonesia, the world’s top producer, is expected this year to be between 23 million and 25 million tonnes, compared with 22.5 million in 2011.
Lower export taxes for palm-based biofuel have spurred Indonesian firms to turn palm oil into the renewable fuel and corner the European market.
The Association of Indonesian Biofuel Producers said there were 24 Indonesian companies named in the European complaint sent to the Indonesian government.
Of the 24 companies, many had already stopped operations, while others only produced biodiesel for domestic consumption or for export markets other than the EU, said APROBI secretary general Paulus Tjakrawan. “All the companies on the list will make clarifications to EU on these allegations,” he said.
According to Reuters calculations, Indonesia shipped out 679,274 tonnes of palm-based biodiesel last year, compared with 244,418 tonnes in 2010. From January to July this year, the figure was about 400,000 tonnes.
Most of Indonesia’s biodiesel is palm-oil based and about 90 per cent of exports go to Europe, with Spain and Italy the top buyers. —Reuters
Sime Darby plans US$1.5b Islamic bond
“We are having ongoing discussions with bankers,” Tong Poh Keow, the group chief financial officer, said in an interview in Kuala Lumpur recently. “The first issuance will likely be in dollars.”
The conglomerate, which also has interests in industries ranging from property to heavy machinery in more than 20 countries, has total debt of RM3.3 billion (US$1.1 billion), according to data compiled by Bloomberg.
The company plans to increase capital expenditure by 23 per cent to RM7.75 billion in the current fiscal year ending June 30, 2013, chief executive officer Mohd Bakke Salleh told reporters in the capital yesterday, after releasing earnings results.
Sime joins Malaysia’s Axiata Group Bhd in seeking to tap funds in the US$1.3 trillion global Islamic finance industry. The Kuala Lumpur-based telecommunications company announced, last month, that it received regulatory approval to start a similar-sized multi-currency sukuk program.
Sales of corporate Islamic bonds in Malaysia, the biggest market for the debt that pays returns on assets instead of interest, are approaching a record in 2012. Issuance rose 41 per cent to RM43.2 billion from a year earlier, compared with the all-time high of RM75.6 billion last year, according to data compiled by Bloomberg.
The Bloomberg Malaysian Sukuk Ex-MYR Index, which tracks non-ringgit denominated sukuk listed in the Southeast Asian nation, gained 4.8 per cent this year to 109.396, after climbing 5.9 per cent in 2011. — Bloomberg
Sime Darby net profit soars to RM4.2b
The plantation business, which typically makes up more than half of the group’s annual profits, saw a slight dip.
In a briefing held here yesterday, Bakke said plantation net profit of RM3.2 billion was 2.3 per cent lower than the previous year because the group harvested less fresh fruit bunches.
Erratic weather conditions, alternating between drought and heavy rainfall, stressed the oil palm trees and this had led to lower yields. Sime harvested 9.8 million tonnes of palm fruits, 3.4 per cent lower than last year’s 10.1 million tonnes.
Interestingly, the group managed to sell its palm oil at RM2,925 per tonne, marginally higher than RM2,906 per tonne in the previous year. Oil extraction rate, however, was a little bit higher at 21.8 per cent compared with 21.4 per cent, previously.
Following Indonesia’s palm oil tax restructure in October 2011, Sime’s refinery business suffered RM62.3 million in losses. This has narrowed from the previous year’s RM74.6 million loss which included an impairment of RM114 million.
Sime’s heavy machinery division experienced brisk business when it sold more mining equipment in Australia. This division chalked up RM1.4 billion in pre-tax profit, 27 per cent higher than previously, as it included maiden contribution from the newly-acquired Bucyrus business.
The property division’s operating profit inched 2 per cent to RM467 million from RM456 million.
Meanwhile, the energy and utilities division operating profit climbed 36 per cent to RM335 million, thanks to recognition of the deferred revenue from its power plant in Malaysia. Its China seaport business enjoyed higher cargo handling throughput at Weifang Port.
The healthcare division’s operating profit maintained at RM26 million, as the high number of patients was moderated by the slower nursing education sector and start-up expenses for the new Ara Damansara hospital.
Sime’s other businesses posted RM68.8 million in profits, a welcome relief from last year’s RM42 million loss. The turnaround was attributed to higher contribution from Tesco and the insurance brokerage business, which included RM29.7 million profit from the impairment of an investment sale.
For the full-year ended June 2012, Bakke highlighted Sime’s RM4.2 billion net profit surpassed its key performance indicator of RM3.3 billion by 27 per cent.
“Return on average shareholders’ funds improved 16.6 per cent, surpassing our 13.3 per cent target. This is the second consecutive year we’ve exceeded our targets. We are well on track to realise the long-term targets outlined in our five-year strategy blueprint,” he added.
On the outlook for the current year ending June 2013, Bakke warned of challenging times as the group’s earnings are highly dependent on palm oil prices.
“Palm oil is trading at a significant discount of US$260 per tonne from soya. So, there’s still a lot of upside. But then again, there are also factors like the restructuring of Indonesian palm oil taxes that are pulling down prices,” he said.
On a positive note, Bakke is hopeful of the palm trees recovering from stress, enabling the group to harvest 10.4 million tonnes of fresh fruit bunches. This represents 6 per cent more than 9.8 million tonnes recorded in the year ended June 2012.
He then went on to say Sime is seeking to double its oil palm and rubber plantation landbank to surpass one million hectares by 2015. Currently, the group has planted 522,000ha of its 870,000 plantation landbank in Malaysia, Indonesia and Liberia.
“We’ve set aside RM7.75 billion as capital expenditure for the year ending June 2013. Of that total, about RM3 billion will go to our plantation business,” he said. “We remained focused on our growth trajectory and this includes expanding Sime’s plantation landbank in Indonesia and West Africa. We want to double up our unplanted landbank by 2015,” he said.
In Liberia, Sime holds a 63-year concession until 2072 to plant some 200,000ha with oil palms and 20,000ha with rubber. Last year, Sime Darby Plantation Cameroon Ltd (SDPCL) was established in Cameroon.
Sabah palm oil refiners to impose bigger discount
KUALA LUMPUR: SABAH’s palm oil refiners will impose a higher discount to buy cheaper crude palm oil (CPO) beginning next month, a move likely to impact revenues of millers as well as planters in the state.
IJM Plantation Bhd chief executive officer and managing director Joseph Tek Choon Yee said refiners in Sabah want to more than double the existing discount of RM40 per tonne of CPO it gets from millers.
“Beginning September 2012, Sabah refiners are increasing the discount from RM40 a tonne of CPO to between RM80 and RM100 a tonne,” Tek told Business Times recently.
It is learnt that Sabah’s discounts of RM40 a tonne was a business agreement from before, when oil from there had to be shipped to refineries in Peninsular Malaysia.
“This higher discount is introduced by the refiners and will mean millers get lower sales proceeds. It will eventually cascade down to the planters as well,” Tek said.
He said that in such a monopolistic situation the millers have no choice but to accept the “forced” discount. “In a way, if this continues, it will affect us (IJM) as well. We will make less RM40 to RM60 a tonne of crude palm oil that we produce from September onwards,” he added.
The new discount to be imposed would translate to a loss of RM8 to RM12 a tonne of fresh fruit bunches effective next month. According to Tek, the additional discount is only imposed by Sabah refiners only.
The refiners’ action is a result of Indonesia imposing a duty structure since October 2011 has dragged CPO prices down by lowering export taxes for processed palm oil products. Indonesia’s move was put in place to boost its downstream activities but this has inadvertently affected Malaysia’s palm oil refining industry as well.
IJM Plantations chief financial officer and executive director Purushothaman Kumaran said it makes no sense for refiners to introduce a higher discount at this juncture.
Just last month, he said, the Government allowed the export of another two million tonnes of duty-free CPO to prevent a build-up in stocks that could weigh on prices. The additional quota was a temporary response to Indonesia’s change in its duty structure, which has pressured the competition.
However, he said, the planting industry associations and the government are already looking into the matter.
Felda Global not in talks with Sarawak Plantation
In its filing to the stock exchange yesterday, the plantation giant said: “FGV is not in discussion with any party on acquiring a substantial stake in Sarawak Plantation Bhd.”
FGV was correcting a news report alleging it is eyeing Sarawak Plantation that has 51,965ha of plantation landbank, of which 57 per cent is planted with oil palms. The news report claimed FGV wants to buy a substantial stake in Sarawak Plantation, which is currently controlled by its biggest shareholders Datuk Abdul Hamed Sepawi and the Sarawak State Government.
FGV operates 343,521ha of oil palm estates in Malaysia that produce 5.2 million tonnes of fresh fruit bunches. Last year, high rubber prices prompted its 10,308ha rubber estates to yield 7,269 tonnes of cup lumps for sale to industrial users.
FGV’s 49 per cent-owned associate Felda Holdings Bhd is a force to be reckoned with, having milled 3.3 million tonnes of crude palm oil last year. This gives it a seven per cent global market share.
When contacted yesterday, a clearly exasperated FGV spokesperson said: “When FGV said it is pursuing various strategies to expand upstream business, it is a general statement. It does not refer to Sarawak Plantations (or, for that matter, any other organisation) specifically.”
He then alluded to FGV’s prospectus stating that some RM2.2 billion of RM4.5 billion raised at the recent initial public offering will go to the purchase of suitable agriculture assets in Indonesia, Cambodia and Myanmar.
