Malaysian palm oil exporters are benefiting from the US recession, as cost-conscious Americans buy more ready-to-eat meals that are mainly cooked in palm oil and margarine.
Demand for palm oil is also rising when more authorities in the US ban artificial trans fats after medical tests linked it to heart ailments, Malaysian Palm Oil Council (MPOC) deputy chief executive Dr Sundram Kalyana said.
“Artificial trans fat is proven to increase the risk of heart attacks and strokes. Many food companies in the US and Canada are voluntarily switching to natural palm oil and bakery fats that are trans fat free,” he said.
Sundram said many food companies choose palm oil because in its natural form, it can straight away be made into bakery fats. Palm stearin formulations, which can withstand high heat of 200°C, have good baking characteristics.
New York City started the ball rolling, and now California has also declared that by January 2010, all 88,000 restaurants in the state will be prohibited from using partially-hydrogenated soft oils that contain artificial trans fats.
“In view of California’s compliance deadline, we’re hopeful of more demand for palm oil and fats in the second half of this year. We should be able to export 1.1 million tonnes of palm oil to the US this year, 10 per cent more than last year,” Sundram added.
In a separate interview, IOI Group’s Loders Croklaan vice-president of research and development and marketing Dr Gerald McNeill confirmed that its operations in Chicago and Toronto are benefiting from these trends.
He said North American consumers are dining less often at restaurants, choosing instead to save costs by cooking at home. They buy more ready-to-eat meals, which are mostly cooked in palm oil and shortening.
Loders Croklaan’s non-hydrogenated, trans-free SansTrans brand was launched in 2003, and by 2006 more than 30 new products based on palm oil had been developed for the US market. Last year, the company sold 250,000 tonnes of SansTrans in North America. McNeill hopes to increase sales by 10 per cent to 275,000 tonnes this year.
Since New York City’s ban on trans fat last year, Loders Croklaan has sold more SansTrans shortenings there to bakeries and restaurateurs for use in cakes, pastry, cookies, biscuits, candies, icing cream, pie crust, and pizza dough.
McNeill said these achievements were not easy, as palm oil in general had to overcome decades of negative perception and propaganda before it won over North America’s baking and confectionery community, and its customers.
That got me thinking of J.Co Donuts founder Johnny Andrean saying the frying, dough and topping fats forms the bulk of the cost in a finished doughnut. He also said using the right blend of oils and fats gives the right flavour and texture.
Incidentally, all other doughnut specialty shops in Malaysia like Big Apple and Dunkin’ Donuts use palm olein and baking fat because it can withstand extreme deepfry heat and sets quickly on cooling.
That is how you get a firm doughnut and best of all, it does not weep oil into the packaging. Palm olein is also a favourite frying medium because its natural antioxidants — vitamin A and E — protects against off-flavours.
In the US, doughnuts are a big business. Donuts cannot be fried in canola oil, soy oil or any other liquid oils. These soft oils leach out of the doughnut. Other than an oily mess, the doughnuts smell and taste bad because soft oils oxidise easily in extreme deepfry heat. In overcoming this ‘weepy’ and off-flavour problem, doughnuts are fried in solid fats.
Food scientists in the US make solid fats by hydrogenating soft oils like soya oil, canola, cottonseed and sunflower. All was well until in the last decade or so, mounting medical studies revealed that the hydrogenation of soft oils resulted in the deadly trans fat that is linked with health problems like heart disease and stroke.
This prompted the US government to legislate against artery-clogging trans fat. New York City has started the ball rolling and now, California state is banning trans fat from consumers’ diet.
Big doughnut franchisors like Dunkin’ Donuts and Krispy Kreme, in doing away with the deadly trans fat, have switched over from using partially-hydrogenated soft oils to heart-healthy palm olein and bakery fat.
Following cleverboy’s comment, Business Times Malaysia has contacted IOI Group’s Loders Croklaan in north America. A big thank you to IOI Group’s Lee Yeow Seng for promptly facilitating this interview with Loders Croklaan vice president of R&D and marketing Dr Gerald McNeill.
More importantly, Malaysia is also making medical progress in using palm oil extracts to lower risks of stroke and heart attacks and eventually, treat these degenerative diseases.
Leading this global race in finding natural sources to stem and treat major killer diseases are Ipoh-based Hovid Group, Universiti Sains Malaysia (USM) and the Malaysian Palm Oil Board (MPOB).
In an interview with Business Times, MPOB revealed that it is funding Hovid Group and USM to conduct clinical trials on the effectiveness of tocotrienols to prevent the onset of brain diseases like stroke.
The vitamin E family is made up of four variants of tocopherols and another four called tocotrienols.
“So far, there have only been animal tests. We’re the first in the world to conduct human clinical trials on the neuroprotective properties of tocotrienols,” MPOB director-general Datuk Dr Mohd Basri Wahid said.
“While our funds are limited, we see the potential of tocotrienols in protecting brain cells and easing clogged arteries. We managed to allocate RM4.48 million for this initiative,” he added.
All in, there are 10 scientists conducting the clinical trials on 200 volunteers, which started in January 2008 and will conclude in January 2011. Since this trial is registered with the US National Institute of Health and the Food and Drug Authority, it is mandatory for the results to be published, be it positive or negative.
MPOB director of product development and advisory services Dr Kalanithi Nesaretnam, who is part of the research team, said MPOB has been studying palm tocotrienols since the 1980s. Incidentally, MPOB was also the first in the world to discover that the lesser known vitamin E family member, called tocotrienols, is a far more potent anti-oxidant than tocopherols.
Preliminary studies proved tocotrienols can heal body cells and trigger cancerous cells to commit suicide.
USM Professor Yuen Kah Hay concurred with Kalanithi. In explaining tocotrienols’ unique biological activities, he cited studies by Ohio State University that proved tocotrienols (but not tocopherols) can prevent programmed death of brain cells under stress by suppressing key cell signals.
Subsequent experiments on genetically-modified mice which are prone to stroke also showed the tocotrienols could minimise cell damage.In view of the promising neuro-and-vascular-protective effects, the present study in Malaysia is conducted on volunteers with white matter lesion (WML), or oxygen-starved brain cells.
“From the brain scans, we can tell if there is WML, a form of subclinical brain infarct. This means the volunteer’s brain vascular network is already unhealthy and at high risk of contracting stroke,” Yuen said.
In this clinical trial, the professor said the researchers have been using tocotrienols, which have neuroprotective properties compared to their lame sister, alpha-tocopherol.
The researchers have also decided to use palm tocotrienols brand named Tocovid Suprabio because its patented formulation ensures optimum vitamin E absorption into the blood stream.
If tocotrienols proved to be able to prevent or reduce the occurrence of WML, then it can lower the risk of stroke. “Prevention,” Yuen added, “is better than cure”.
He paused and sipped on his glass of water. With a solemn expression, he revealed brain scans of 200 volunteers at USM’s facilities in Hospital Kepala Batas showed half of them had WML. This supports latest statistics that stroke is Malaysia’s number three killer after heart disease and cancer, with an average of five people dying of it every hour. Every year, it is estimated that 52,000 people suffer from stroke.
While the numbers are daunting enough to inflict paralysing fear, there is no need to panic. Hovid Bhd, which is spearheading this clinical trial, is optimistic of a positive outcome.
When asked to estimate how soon Malaysia can find the cure to neuro and cardiovascular diseases and formulate medication from palm tocotrienols, Hovid managing director David Ho envisioned a series of capital-intensive clinical trials on a bigger sampling of volunteers over a decade or so.
“We’re fortunate that MPOB agreed to fund this clinical trial in Penang. But we cannot rely fully on MPOB as its financial resources are limited,” he said. “We definitely need more public funding support to come up with more convincing data that palm tocotrienols can prevent and treat stroke and heart attacks,” he added.
So far, the process that led to the joint clinical trial with USM and MPOB has not been easy. It took six months to obtain ethics approval from the medical fraternity before MPOB made the allocation.
Ah… It is Friday the 13th today.
People say this date spells bad luck but I already felt the doom and gloom in last few days.
It was not a very happy POC 2009.
Even the lighting at the event reflected the bleak sentiment of “Challenges of Change” when Bursa Malaysia’s chief executive Dato’ Yusli Mohamed Yusoff delivered his welcome speech.
Celebrity-status palm oil analysts Thomas Mielke, Dorab Mistry and Dr James Fry, yesterday, forecast prices to fall as low as RM1,500 per tonne in the second half of the year.
Their solemn facial expression was a big contrast to last year’s broad smiles when vegetable oil prices rallied to historical highs then.
Fry was the first to struck a sobering chord in the hearts of some 1,000 vegetable oil traders at the Palm and Lauric Oils Conference & Exhibition Price Outlook 2009 conference yesterday.
After reminding traders that the global economy in the midst of a recession, he concluded he was bearish on palm oil prices. He anticipated palm oil prices could fall back to RM1,500 per tonne.
As Fry left the stage, Mielke suddenly appeared in digital format on the broad screen like a scene off Star Trek, minus the background music.
Mielke, who is a regular for the past 20 years, took pains to highlight he was absent at only two occasions and this was the third. “I’ve been a regular participant and speaker at the POC series in Kuala Lumpur right from the begining. I’m extremely sorry I cannot attend personally this time as I already accepted to speak at NIOP in Tucson and Canadian Canola Conference in Toronto,” he said.
“I was only invited by the organiser of the POC series, four months ago. It is, indeed, very unfortunate that such international conferences are not co-ordinated,” he added.
Mielke immediately lifted the mood in the hall when he said consumers around the world are getting more dependent on palm oil due to insufficient production of other oils and fats. As farmers find it difficult to secure credit facilities from the banks and experience profit margin squeeze, they cut back on new plantings and reduced fertiliser application. Therefore, palm oil prices have additional upward potential by US$70 to US$100 per tonne until June.
This cheerful news, however, only lasted three seconds. He went on to say there are many risks and uncertainties ahead. He reminded traders there will be increase of two to three million acres in the US soybean plantings this spring and the bumper harvest of soybean crop is likely to have an impact on soybean (and crude palm oil) prices from July onwards.
By the time Mistry got up the stage, many traders were already restless and folding their arms tightly across the chest.
True to his charismatic ways he struck the right chord with fellow traders when he revealed the unspoken rule.
If a fellow trader were to call out, “Hey! brother …” it is best to make
allowance of RM400 per tonne and if he regards you, “My dear friend …”, you
could set a buffer of RM200 per tonne and finally if he only sees you as “just a
friend…”, he is as reliable as a difference of RM100 per tonne.
This got the hallful of traders roaring with laughter. It is especially relevant now because many palm oil exporters from Malaysia and Indonesia are still trying to reconcile defaulted contracts with ‘guilty’ clients.
Standing tall before ‘more honourable’ traders in the hall, Mistry noted that incidentally, their ‘guilty’ friends were absent. Perhaps they have refrained from participating in the POC 2009 for fear of embarassing encounters.
Having set the right camaderie, Mistry noted the company he trades for, India-based Godrej Group, has never defaulted. He had always honoured contracts with clients in Malaysia and Indonesia. “And I’m telling you this as a friend, not a brother ..,” he said. This was met with more cheering and clapping.
Moving on to price outlook, Mistry gave pointers of bouyant prices in the immediate weeks. As the crowd warmed up to this news, he let out a bombshell that the medium term prospects is bleak.
“Palm oil stocks for the next few months will tighten as the trees take a rest. Prices could briefly challenge the RM2,100 per tonne level in the immediate weeks. Prices, however, will then fall as low as RM1,500 per tonne in the second half of the year when we see good uptick in palm oil production. Beyond May, palm will become uncompetitive against Latin America’s soya oil and will lose market share,” he said.
Bursa Malaysia was right to save the best for the last.
Though a vegetable oil trader by profession, Mistry was in his element when he displayed excellent oratory skills, delivery of dry humour and clever play of words.
The conference ended on a light note despite the not so bright price outlook.
Kuala Lumpur POC series has come of age
WHEN Malaysia first started the annual palm oil conference 20 years ago, the government had to pay for the hotel charges of most participants to start the ball rolling.
Today, the Palm and Lauric Oils Conference & Exhibition Price Outlook (POC 2009) can afford to charge people to attend and they still come despite a global downturn and higher fees.
Malaysia, which is the world’s biggest palm oil exporter and home to the world’s largest market for palm oil derivatives, has been able to lead the industry with the POC series.
Executives from major companies, traders and even foreign government officials converge in Kuala Lumpur to gain an update on industry issues like where the price is heading and latest trends.
They can also get a sense of where the new markets are for palm oil by just being at POC 2009. There are more participants from Eastern Europe, Russia, Africa and the Middle East. In fact, Bursa Malaysia provided Russian delegates real-time translation services this year, allowing them more active participation in the events.
The palm oil industry has had a rough ride last year. From a high of RM4,486 per tonne in March 2008, crude palm oil prices tumbled to a low of RM1,390 in October. The record high price prompted Malaysia to slap a windfall tax on CPO, which is still in place now, while the dizzying plunge resulted in buyers cancelling orders.
Many palm oil exporters in Malaysia and Indonesia suffered hundreds of million US dollars in losses.
This dark side of the industry was also evident by the less crowded POC 2009. A mid-sized plantation company official told Business Times that his “guilty” clients were absent this year.
Popular speaker at the POC series, analyst Dorab Mistry, hit the nail on the head when he applauded the courage of a small band of Indonesian palm oil companies that stood up against defaulters and blacklisted those who did not honour contracts.
“Sadly, many of the culprits turned out to be my fellow Indians and worst of all were Indian government-linked companies. Their behaviour was nothing short of scandalous. It will do India’s image as a great trading nation a tonne of good if these public sector companies were made to honour their obligations.
“The Indian government could start by meeting with affected palm oil companies in Malaysia and Indonesia and hear from the horses’ mouth the extent of the admitted and unadmitted defaults,” he said.
Mistry then vowed to continue speaking of such despicable acts by such “black sheeps” until the wrongs are made right.
The crowd before him, surprised by his daring “confession” on behalf of his fellow countrymen, broke out into a thunderous applause.
Meanwhile, at the event, Kenanga Deutsche Futures Sdn Bhd was duly recognised the best overall performer for six consecutive years in attracting the biggest trades into Bursa Malaysia Derivatives Exchange.
The impact of the global financial crises was felt at POC 2009. The turn out was a moderate 1,200 paid delegates compared to last year’s 1,800.
Perhaps it was the expensive fees and lack of lead time for the event manager. This year, delegates pay RM2,300 per head, 20 per cent more than previously.
While the turn out was not as grand as before, traders from China and Russia benefitted from the real time translation provided by the organiser Bursa Malaysia. Considering that the POC series is the world’s leading vegetable oils event, a whole hall of dining spread was dedicated to vegetarian connoiseurs.
There were more computers at the media room this year. Yay! Good for reporters like me.
This year, Oil World trade magazine editor Thomas Mielke is not in Kuala Lumpur but he will appear in digital format tomorrow. He sent a DVD presentation of his price outlook.
While vegetable oils price analysts have yet to present their forecast, many traders do not expect prices to leap or plunge too much in the next few months. Since the start of the year, the palm oil futures has pretty much stabilised at around RM1,900 per tonne. This is good for downstream businesses like oleochemicals and specialty fats but unexciting and boring for scalpers or hedge funds.
Last year, there was much buzz and talk of the launch of US-dollared palm oil contracts at POC 2008. This year, we witnessed a sobering tale of the ill-fated FUPO.
Bursa to work harder on marketing FUPO
BURSA Malaysia Bhd will step up efforts on market-making, having seen thin trade of the US dollar-denominated crude palm oil futures, known as FUPO, since its launch six months ago.
“We will put right the mistakes that led to the FUPO not taking off,” Bursa Malaysia chief operating officer Omar Merican said yesterday.
He admitted that Bursa Malaysia had underestimated the scale of the global financial crisis when FUPO was launched on September 5 last year. It only saw five lots traded on its first trading day.
“It was not such a smart move in the timing of the launch and we had underestimated the scale of meltdown that saw many commodity funds shrinking.
“This is our first non-ringgit instrument and we did not do well in marketing it to the global investing world. We will have to work harder on market-making,” Omar said.
He was responding to a query on the dismal performance of FUPO while addressing an audience of more than 1,200 delegates at the Palm and Lauric Oils Conference & Exhibition: Price Outlook 2009/10 in Kuala Lumpur.
Market-makers are usually brokerages and banks that accept risks by quoting both buy and sell prices in futures contracts, hoping to make aprofit on the turn or the bid/offer spread. Each market-maker aims to narrow the spread between buyer and seller. Once an order is matched, the market-maker immediately sells from its own inventory or seeks an offsetting order. This process takes place in mere seconds.
There are currently 18 licensed futures brokerage facilitating palm oil trading on the Bursa Malaysia Derivatives market.
When met at the conference, Malaysian Futures Brokers Association (MFBA) president Steven Lai Choon Lim told Business Times that a handful of futures brokers were in talks with the stock exchange to help generate liquidity in the FUPO market.
Asked how soon this move would materialise, he replied: “The response to market-maker schemes will depend on the incentives Bursa Malaysia has to offer.”
Potential traders of FUPO are biofuel producers and users, shipping and freight companies, oleochemical producers, food manufacturers and restaurant chains, and commercial banks.