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US may buy more Malaysian palm oil

December 24, 2013 Leave a comment
PETALING JAYA: The United States may buy more palm oil from Malaysia, now that the Food and Drug Administration (FDA) has
dropped trans fats’ “Generally Recognised as Safe” (GRAS) status.

Last month, US FDA Commissioner Margaret Hamburg reportedly said her agency had preliminarily determined that partially hydrogenated oils, a major source of trans fats in processed foods, are not generally recognised as safe for food. 

Trans fats have been linked to an increased risk of coronary heart diseases, in which plaque builds up inside the arteries and may cause a heart attack. She called the agency’s announcement “a critical step in the protection of Americans’ health”. 

Traditionally, food companies add hydrogen gas to soft oils, in a process called hydrogenation, to make them more solid or spreadable, prolong shelf-life and maintain flavour stability. But, the side effect of this process is trans fats. 

“Since palm oil is naturally semi-solid at room temperature, it is an ideal substitute for trans fats. 

“We expect food companies in the US to place more orders for palm oil, a heart healthy and yet versatile food ingredient,” said Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad. 

Currently, the US buys around a million tonnes of palm oil from Malaysia. Since 2006, the FDA has passed a compulsory ruling on trans fats labelling. This prompted the food companies there to turn to palm oil to phase trans fats out of their products. 

“The latest FDA ruling bodes well for palm oil exporters. We estimate a possible upsurge of up to 200,000 tonnes of palm oil shipment from Malaysia to the US,” he told Business Times, here, recently. 

Meanwhile, on policy development in the EU, Jaaffar noted that starting next year, Malaysia and Indonesia will be competing on a level playing field when exporting palm oil, oleochemicals and biodiesel to the continent. 

“Starting next month, oleochemical and biodiesel shipments from both Malaysia and Indonesia will be subjected to the usual import tax when they reach EU shores. “These are items categorised under Chapters 34 and 38,” he said. 

Earlier this year, there was confusion as to whether Malaysia may be getting the short end of the stick since next year onwards, it will graduate from the Generalised System of Preferences (GSP) status with the EU with regard to Chapters 34 and 38. 

Jaaffar said Malaysia began to graduate from GSP status back in 1999. It started with Chapter 15, which listed crude palm oil, crude palm kernel oil and all refined palm oil. 

“Since then, we’ve been paying the usual import duties on shipment of products listed under Chapter 15 to the EU,” he said. “All the while, Indonesia had been enjoying GSP status with the EU. But starting 2014, Indonesia will graduate from Chapters 15, 34 and 38, too.” 

‘Havoc for palm oil sector’

December 23, 2013 Leave a comment
PETALING JAYA: Palm oil refiners, some of which are owned by the country’s largest conglomerates, may face a bleak future if Malaysia accedes to demand under free trade pacts to dismantle the crude palm oil (CPO) tax.

Among the free trade agreements that Malaysia is negotiating are the Trans-Pacific Partnership (TPP) agreement and European Union Free Trade Agreement (EU FTA), say refiners.

In an interview with Business Times recently, Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad said: “If our government were to dismantle the CPO tax as usually prescribed under free trade agreement negotiations, it will spell suicide for palm oil refiners here. It will cause havoc throughout the palm oil supply chain.

“The International Trade and Industry Ministry (Miti) needs to be more discerning. In negotiating for better market access into the United States and EU, it must not be hoodwinked into killing palm oil refiners here.

“If the government dismantles the CPO tax, it will sabotage the initiative to attract investments to add value to the palm oil supply chain,” he added.

The CPO export duty structure fluctuates on a monthly basis at between 4.5 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. If the prices are between RM2,550 and RM2,700 a tonne, planters will be taxed 5.5 per cent. Exports of refined palm oil, however, are not taxed.

Last year, the Plantation Industry and Commodities Ministry, in wanting to reduce high stockpiles, waived export duties on five million tonnes of CPO. The decision, however, created a loophole and led to a partially duty-free environment.

Jaaffar said five million tonnes of duty-free CPO amounted to 27 per cent of 2012’s production. As a result of that policy move, it worsened the already lopsided trading environment, which was favouring Indonesia then. Local palm oil refiners thus suffered a double whammy.

Apart from Singapore and Japanese investors, Poram members include Felda Global Ventures Holding Bhd, IOI Corp Bhd, Sime Darby Bhd, Kuala Lumpur Kepong Bhd, and Sarawak Oil Palms Bhd.

The TPP is a multilateral deal of which the US — the lead negotiator — aims for more trade flows with Malaysia, Australia, Brunei, Canada, Chile, Mexico, New Zealand, Peru, Singapore, Vietnam and Japan.

“If you draw from the US’ free trade agreement with Peru, Malaysia may be told to dismantle the CPO export duty, as what the US had required of Peru,” Jaaffar said. “If our government agrees to this, Malaysia will regress from a value-adding industrial economy to that of a simple commodity exporter.”

More calls to stop windfall levy

December 19, 2013 Leave a comment
CAP ON POTENTIAL GAINS: Oil palm planters face double taxation when CPO prices climb above RM2,500 per tonne

KUALA LUMPUR: AS crude palm oil (CPO) prices firm up, oil palm planters renew their appeals to the government to abolish the windfall tax.

Yesterday, the third-month benchmark palm oil futures on Bursa Malaysia Derivatives Market closed at RM2,554 per tonne.

“In the last seven weeks, CPO prices have climbed past RM2,500 per tonne. Although this sounds like good news, it’s actually very painful for oil palm planters. 

“We face double taxation; one is the CPO tax and the other is the windfall levy,” said Malaysian Palm Oil Association (MPOA) chief executive Datuk Dr Makhdzir Mardan.

He said oil palm planters in Peninsular Malaysia pay the windfall levy when palm oil prices go beyond RM2,500 per tonne in the cash market. Planters in Sabah and Sarawak, however, pay this levy if the price crosses RM3,000 per tonne.

“Since the government restructured the CPO tax this year, it should have also done away with the windfall profit levy,” Makhdzir told Business Times here recently.

“Planters are having a tough time with less profits following labour shortage and the implementation of the minimum wage policy. Low CPO prices throughout 10 months of the year have shaved off profits of plantation companies by as much as 30 per cent and this has affected return on investments to shareholders.” 

The windfall levy indirectly caps potential gains in palm oil prices. Makhdzir explained that when palm oil is slapped with the levy, it gives the perception that the food item is overpriced and triggers a psychological reaction among buyers in China, India, the United States and Europe to slow down their orders.

“The government may collect millions of ringgit in windfall levy but unfortunately, this move also denies the opportunity in garnering billions of ringgit in export earnings for the country.” 

Oil palm planting is a capital-intensive activity. Every year, planters have to chop down old and unproductive trees and replace them with higher yielding seedlings. Planters, particularly smallholders, need to re-invest their profits to raise productivity at their fields. “How are they going to carry this out effectively when they have to pay more taxes in the form of windfall levy?” Makhdzir asked.

Two months ago, the Malaysian Estate Owners Association (MEOA) reiterated its long-drawn appeal to the government to abolish the windfall tax as it deters re-investments.

MEOA president Boon Weng Siew had reportedly said when CPO trades above RM2,250 a tonne, planters pay a 4.5 per cent export duty and when the price rises above RM2,500, planters have to pay a 5.5 per cent export duty as well as windfall tax. 

“This double taxation is punitive to oil palm planters in Peninsular Malaysia.”

According to the Malaysian Palm Oil Board, Malaysia produced 17.55 million tonnes of CPO in the first 11 months of this year.

In the last three weeks, floods in the east coast of Peninsular Malaysia disrupted the harvesting of oil palm fruits and the transport of palm oil to refineries and seaports. In view of the supply disruption, market punters are betting that CPO prices will continue to trade above RM2,500 a tonne in the weeks ahead.

Commenting on the impact of the flood on the country’s CPO output for the year, Makhdzir said: “Now that the floods have somewhat subsided, I think the overall impact is not too severe. We should still be able to squeeze out 19 million tonnes of CPO for the full year.”

Lee increases shareholding in IOI

December 17, 2013 Leave a comment
This is written by my editor Francis Fernandez.

KUALA LUMPUR: Tan Sri Lee Shin Cheng has strengthened his hold on IOI Corp Bhd as the company zeroes in on acquisitions to beef up growth.

Parties directly related to Lee bought the company’s shares for between RM5.76 and RM5.79 a piece from the open market, filings to the stock market show.

Lee, said to be worth US$4.5 billion (RM14.5 billion), saw his family members spend slightly more than RM25 million within two days (December 11 and 12) to acquire around five million IOI shares.

IOI shares, up some two per cent this month, rose to RM5.87 each, before ending at RM5.78.

The purchases helped the country’s sixth richest man, according to Forbes Magazine, increase his indirect shareholding in IOI to 45.32 per cent.

The 74-year-old Lee has a direct 1.04 per cent stake in IOI, the country’s fourth largest plantation company.

The Lee family was not the only ones buying IOI shares in a big way. A quick check on Bursa Malaysia’s website shows that the Employees Provident Fund (EPF) also bought some 1.44 million IOI shares on December 11. With the purchase, the EPF now owns some 9.2 per cent of the company.

Purchases by IOI’s two biggest shareholders come at a time when analysts expect crude palm oil (CPO) to fetch a better price next year.

Last Thursday, Alliance raised IOI’s financial year 2014-2016 earnings outlook by 6.4 per cent and 7.1 per cent, respectively, to reflect an upward revision of CPO average selling price from RM2,400 a tonne to RM2,575-RM2,600 a tonne for the respective years.

Meanwhile, on the acquisition of oil palm estates, IOI told the stock exchange that it now owns some 94.79 per cent of Unico-Desa Plantations Bhd. The whole Unico Desa takeover is valued at RM606 million. 

KL is world’s palm oil price hub

December 13, 2013 Leave a comment
TIGHT CORRELATION: Vegetable oil traders all over the world look to Bursa Malaysia as the global reference for palm oil prices. Refiners tell OOI TEE CHING how palm oil price movement at Bursa Malaysia Derivatives Exchange influence the commodity exports.

IT’S lunch time. The palm oil futures market takes a breather from trade before it re-opens at 3pm.

Bursa Malaysia Derivatives Bhd chief executive officer Chong Kim Seng points to his handphone and notes that one can conveniently access palm oil futures prices on the exchange real time.

“Whether you’re in Malaysia or in the United States, India, China or Africa, palm oil prices are quoted out from here, Kuala Lumpur. This is where the buying and selling of crude palm oil futures takes place,” he said.

Although there are many markets around the world facilitating palm oil trading, vegetable oil traders and commodity analysts look to Bursa Malaysia as the global hub for price reference.

Back in the 1970s, tin and rubber prices used to be quoted out of Kuala Lumpur. As time went by, however, trading of these commodities became more active and visible in other markets. 

Hence, today, tin prices are quoted out of the London Metal Exchange while rubber prices are directly reported from the Tokyo Commodity Exchange.

This development suggests a shift of commodity trading significance from producer to consuming countries. One may argue that palm oil trade may face the same fate as tin and rubber. Bursa Malaysia may lose its global palm oil price lead to more active futures markets like China’s Dalian Commodity Exchange.

Many vegetable oil traders have highlighted that current palm oil trades at the Dalian Commodity Exchange is many times more than the average daily volume settled at Bursa Malaysia Derivatives Exchange. Indeed, Malaysia is no longer the world’s biggest palm oil producer nor home to the world’s largest market for palm oil derivatives.

When asked what makes Bursa Malaysia the global reference for palm oil price benchmarking, Chong said it all boils down to the exchange’s role in maintaining a transparent, efficient and convenient trading environment for market participants, whether they are traders, bankers or speculators.

“We consistently enforce rules to ensure that trading takes place in an open and competitive environment,” he said.

“We also promote efficient price dissemination so that businesses in the palm oil value chain, both upstream and downstream, can better benchmark their risks,” he added.

Meanwhile, the third month benchmark palm oil futures closed at RM2,613 per tonne yesterday. It has been on an uptrend in the last five weeks. 

As futures prices climbed, palm oil prices in the physical market rose too. In explaining the tight correlation between the two markets, Chong said “there’s continuous interplay of price movements between the two markets”. 

“This is because the futures market allows for price risk encountered in the physical market to be transferred to other parties more willing to assume the price risks,” he added.

Similarly, in taking the cue from price rises in the futures market, plantation counters on the equity market like IOI Corp Bhd, Sime Darby Bhd, Felda Global Ventures Holdings Bhd, Kuala Lumpur Kepong Bhd and Genting Plantations Bhd had seen their share prices go up.

Palm oil refiners benchmark the price of their shipments against that quoted out from Bursa Malaysia at any given time. As the price goes up, so does the value of palm oil exports.

In a separate interview, Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad concurred that the country’s palm oil exports are very much influenced by pricing.

In the first 11 months of this year, Malaysia exported RM55.88 billion worth of palm oil products. It is estimated that this number should cross the RM60 billion-mark at the end of the year.

Last year, palm oil shipment totalled RM71.45 billion.

“In the first 11 months of this year, palm oil averaged at RM2,352 per tonne. This is much lower than last year’s average of RM2,764 per tonne. The higher the palm oil price, the higher our palm oil exports,” he said.

Malaysia produces some 19 million tonnes of palm oil a year, of which about 18 million tonnes are shipped out of the country in the form of cooking oil, margarine, oleochemicals, animal feed and biofuel.

Bursa Malaysia’s palm oil futures market value adds to this as Chong noted that this year the exchange is expected to settle around eight million palm oil contracts.

“In the last five years, the palm oil trading volume on the futures market has doubled. Back in 2009, it was only four million contracts. This year, we’re expected to surpass eight million contracts. Each contract is 25 tonnes. So, that works out to 200 million tonnes of palm oil settling at the futures market this year,” he said.

“If Malaysia only has the physical market, we would only be trading around 19 million tonnes of palm oil. But with Bursa Malaysia’s futures market, we can trade up to 10 times that of the physical market,” he added.

MPOB leverage on green, gene technologies

November 23, 2013 Leave a comment
KUALA LUMPUR: MALAYSIAN Palm Oil Board (MPOB) plans to leverage on green and gene technologies to achieve increased profit, environmental stewardship and social responsibility.

“The application of gene technologies in the study of oil palm breeding materials will lead to the identification of genes and accelerate the development of elite planting materials,” said MPOB director-general Datuk Dr Choo Yuen May.

“The genome contains the genetic blueprint for life and encodes the entire set of genes responsible for each and every trait,” Choo said in her plenary presentation at the recent MPOB International Palm Oil Congress (Pipoc) here yesterday.

Her presentation focused on MPOB’s genome research breakthrough and the discovery of its practical application, the SureSawit Shell Kit, which enables oil palm growers to identify their shell type with 100 per cent accuracy.

With conventional breeding, scientists must wait until they can measure the trait in mature trees before selecting high-performing individuals for the next breeding cycle, she said.

“But knowing which gene controls a desired trait, however, enables the selection of elite materials at the nursery stage through marker-assisted breeding, and it saves time, too.

“Genomics applied to oil palm will play a significant role in yield improvement, food security, the reduction of the rainforest footprint and serve as an indispensable tool for breeding,” she explained.

Choo said by 2050, when the world population has grown by a projected two billion to 9.1 billion, it will require a significant increase in food production over current levels. In the near future, exporting nations must significantly increase their production and exports.

Another concern is the increase in greenhouse gas (GHG) emissions resulting from the population growth and the reliance on fossil fuels.

“There is an urgent need for renewable fuels that can provide a sustainable solution to the world’s energy needs. Oil palm, properly managed, is an eco-friendly feedstock for biofuel,” she said.

Palm oil is the leading source of vegetable oils and the best candidate for meeting the world’s increasing need for food and renewable fuel as it yields 10 times more oil than soya bean, its closest competitor. 

“Oil palm is planted on only five per cent of land occupied by oil crops and yet it contributes to about 43 per cent of the world’s edible oils,” she said.

Fry: CPO prices may hit RM2,750

November 22, 2013 Leave a comment
KUALA LUMPUR: Crude palm oil (CPO) prices are expected to trade as high as RM2,750 a tonne early next year due to more palm oil-based biodiesel use, said LMC International Ltd chairman Dr James Fry.

“The price gap between crude petroleum and CPO favours more consumption of palm biodiesel,” he told the 1,000 delegates at Malaysian Palm Oil Board’s (MPOB) International Palm Oil Congress (PIPOC) 2013, here, yesterday. 

Since production of palm biodiesel is profitable, oil companies in Indonesia and Malaysia have started to mop up CPO from the market to blend with regular diesel. 

MPOB data shows that for the first 10 months of this year, biodiesel exports rose sevenfold to 140,676 tonnes from the same period a year ago. 

Fry reiterated his long-held view that palm oil prices would continue to be highly influenced by petroleum prices. 

Yesterday, Brent North Sea crude oil for January rose 18 cents to US$108.24 a barrel. At the same time, the third-month benchmark palm oil futures on the Malaysian Derivatives Market went up RM73 to close at RM2,653 per tonne.

“If Brent crude continues to trade at the current level, I don’t see wildly exciting changes in CPO prices. It may well rise in the months ahead to RM2,750 a tonne,” Fry said. 

On the prospects of CPO prices surpassing the RM3,000 a tonne-level, Fry replied: “Do bear in mind that there’s a limiting factor as there’s a major recovery in the supply of soft oils, like sunflower and rapeseed.” 

MPOB senior research officer Ramli Abdullah, in his presentation, said Malaysia’s CPO production is likely to expand two per cent to 19.1 million tonnes this year. 

“This is on the assumption of normal weather conditions, increased new plantings and more trees maturing and bearing more fruits,” he added. 


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