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IOI to spend RM1b to boost refining capacity

October 29, 2009 1 comment

IOI Corp is investing RM1 billion to expand and upgrade its refineries and specialty fats plants in Malaysia and the Netherlands. The money will be sourced from shareholders.

Yesterday, IOI Corp Bhd’s shareholders approved a renounceable 1-for-15 rights issue of up to 421 million shares priced at RM2.90 each that would raise RM1.22 billion. IOI’s single largest shareholder of 41 per cent stake, Progressive Holdings Sdn Bhd, will buy all entitled shares. Progressive is owned by IOI executive chairman Tan Sri Lee Shin Cheng and family.

“About RM1 billion will go to expanding our refineries in Pasir Gudang and Rotterdam,” said Lee.

“We’re adding 450,000 tonnes a year capacity to the Rotterdam refinery. There will also be a new 100,000 enzymatic line to produce natural hard stock for margarine-making,” he told reporters after the company’s shareholders’ meeting in Putrajaya yesterday.

Greater health awareness and green consumerism in Europe has spawned demand for organic and natural food ingredients. Lee said the new plant in Rotterdam will be more energy efficient and use enzymes (instead of chemicals) to churn out premium quality specialty fats.

IOI’s 1.3 million tonnes per year refinery in Pasir Gudang will see expansion by 150,000 tonnes. Together with it are additional specialty fats plants to make super olein, cocoa butter equivalents and betapol infant milk.

The Roundtable on Sustainable Palm Oil (RSPO) will meet next week to update on the progress of supply and purchase of green palm oil.It was reported that environmental activists within RSPO have proposed new greenhouse gas emission requirements to existing principles and criteria.Sarawak Oil Palm Plantation Owners’ Association, Malaysian Palm Oil Association and Indonesia-based Gabungan Pekebun Kecil Indonesia (GAPKI) objected to this proposal.

Lee said the RSPO is voluntary and cannot infringe on the sovereign rights of any nation in deciding the right to use its land in accordance to its own economic and social needs.”As a founding member of RSPO, we have utmost faith in the wisdom of all stakeholders to arrive at a more balanced outcome,” he said. IOI has been preparing and training for the RSPO certification since 2007.

For the past two months, palm oil has been trading at between RM2,000 and RM2,200 per tonne on Bursa Malaysia Derivatives Market. Asked if planters like IOI Corp are comfortable with current prices, executive chairman Tan Sri Lee Shin Cheng said: “If prices trade between RM2,200 and RM2,500 per tonne for the next few months, I think, this level is acceptable to planters and manufacturers.”

“Palm oil, being a very affordable vegetable oil, continues to see strong global demand. That’s why we’re expanding capacity,” he said.

Robust demand is being fuelled by the US and Europe choosing palm oil over partially-hydrogenated soft oils that is loaded with artery-clogging artificial trans fat. Medical studies have shown consumption of artificial trans fat increase the risk of heart attacks and strokes.

From January 1 2010, all 88,000 restaurants in California are banned from using partially-hydrogenated soft oils that contain the artificial trans fats. Palm oil, a healthy substitute to make margarine, shortenings and baking fats is becoming popular there. “Many food companies in the US and Canada have switched to natural palm oil and bakery fats. We’ve seen increased orders from New York City and lately enquiries from California,” Lee said.

Gov incentives for millers, biodiesel and biogas producers

October 28, 2009 Leave a comment

Biodiesel and biogas plant contractors, oil palm millers installing greenhouse gas capture tanks and biodiesel plant owners are eligible to apply for cheaper loans under a new government scheme.

Energy, Green Technology and Water Minister Datuk Seri Peter Chin said that under the 2010 Budget, the government, through commercial banks, will offer RM1.5 billion worth of loans to companies that supply and use environmentally friendly technologies.

“I urge process engineers and plant owners using green technologies to put in their applications to my ministry. Once approved, they can get the soft loans from the banks,” Chin told Business Times in an interview in Kuala Lumpur.

“The government is promoting green technology across all sectors,” he added.

Suppliers of green technology can borrow up to RM50 million, while their clients are eligible to take a maximum loan of RM10 million. The loans, of which the government will bear 2 per cent of the total interest rate, will be offered at all commercial banks from January 1 next year. The government will also guarantee 60 per cent of the loan.

When contacted, Lipochem Sdn Bhd managing director Koh Pak Meng said, “This is good news. It will speed up the implementation of home-grown technologies to produce biodiesel and biogas.” Since 2005, it has been leveraging on Malaysian Palm Oil Board (MPOB)’s technology to build biodiesel plants in Malaysia, South Korea and Indonesia. It is now working with scientists in Japan to further develop efficient ways to capture harmful greenhouse gas from palm oil mill effluent and process it into biogas for power generation.

Oil palm millers, timber processors and rubber glove makers using biomass to fuel their boilers are also eligible to apply for pioneer status and investment tax allowance.

Three weeks ago, Chin launched the handbook on Incentives for Renewable Energy and Energy Efficiency In Malaysia. “The government will only receive applications for these fiscal incentives until the end of 2010,” he said.

The pioneer status, granted under the Promotion of Investments Act 1986, provides a 10-year income tax break for renewable energy businesses. There is also a full tax allowance on qualifying five-year capital expenditure. Unused allowances can be carried forward until fully absorbed.

Chin added that all applications for pioneer status, investment tax allowance and exemptions from import duty and sales tax must be submitted to the Malaysian Industrial Development Authority (MIDA).

New biodiesel mandate to reduce gov spending

October 25, 2009 1 comment

The Plantation Industries and Commodities Minister plans to propose the sale of biodiesel with less palm oil content to reduce government spending for the initiative, known as the B5 mandate. Under the mandate, the government has set a January 2010 deadline to sell B5 biodiesel, a mixture of 5 per cent palm oil and 95 per cent diesel.

If the government sticks to B5, it will have to spend about RM250 million that is needed by the industry to blend the mix and distribute it to petrol stations. Minister Tan Sri Bernard Dompok said a more realistic alternative would be to revise downwards the blend ratio.

“I’ll be proposing to the Cabinet to bring down the B5 mandate to B3 or B2. The B5 mandate, if it were to be fully implemented, would cost around RM240 million to RM250 million. This is a problem because ordinary diesel is already being subsidised by the government,” he told Business Times and Dow Jones newswire in an interview in Putrajaya yesterday.

Malaysia had planned for the B5 mandate to be rolled out in stages, starting from February this year with government vehicles, followed by the industrial and transport sectors. So far, only Kuala Lumpur City Hall (DBKL), Selangor’s Jabatan Kerja Raya (JKR) and the Army have been using biodiesel in their vehicles. They get their biodiesel supply from the Klang Valley Fuel Depot near Puchong, Selangor.

The B5 mandate is scheduled for full implementation at all pump stations throughout the country by January next year. Oil companies like Petroliam Nasional Bhd, Shell, Esso, Caltex and BHPetrol are positive on retailing biodiesel at the pumps, but when it comes to absorbing blending cost at all 36 fuel depots nationwide, they remain hesitant.

According to the Malaysian Biodiesel Association, there are 10 active biodiesel plants. Five are in Pasir Gudang, one in Kuantan, two in Lumut and the remaining two in Lahad Datu.These plants, which are built at seaports, are far away from towns and cities of high population. It costs extra money to transport biodiesel to the fuel depots to be blended with ordinary diesel.

Dompok said the Finance Ministry had agreed in principle to lift the 10 per cent tax on the sale of biodiesel in the country. “The effective gazette date on the tax exemption on biodiesel sales will be announced later,” he said.

Eye on fuel and food subsidies

October 23, 2009 Leave a comment

In view of the Budget 2010 to be announced in Parliament by Prime Minister Dato’ Seri Najib Razak this afternoon, my boss wrote on fuel and food subsidies.

KUALA LUMPUR: The 2010 Budget will address the need for Malaysia to be competitive and a major thrust of that will be a better distribution of subsidies. Prime Minister Datuk Seri Najib Razak will present his first Budget today as finance minister and indications are that a “fairer” method of distributing subsidies to the deserving will be announced.

The largest subsidies today are for petrol and diesel but the government also subsidises cooking oil (pure palm or blended), sugar and bread.

We want to cut the fat and we will stress value for money and efficiency,” said a senior government official.

The government faces a tricky balancing act as it is already spending more than it earns to stimulate the economy, as a result of the worst global recession since the 1930s.

The Malaysian economy has been officially forecast to shrink by between 4 and 5 per cent this year. With two stimulus packages worth RM67 billion, the government expects to report a 2009 deficit of 7.6 per cent of gross domestic product, the sum total of all goods and services produced in a country.

However, the government plans to narrow the deficit when the economy recovers, Second Finance Minister Datuk Seri Ahmad Husni Mohamad Hanadzlah said recently.

Analysts and economists are not expecting goodies like tax cuts as tax revenue will be lower following a tough 2009. There is also speculation that a goods and services tax (GST) might be introduced as the government seeks to broaden its revenue base. This has generated much debate in the business community as many argue that having a GST so soon could derail recovery with the public spooked and cautious about spending.

Still, the 2010 Budget is likely to show that the government continues to have the people’s welfare at heart. It may even give some breaks to “forgotten” segments of the population, such as film-makers, songwriters and actors.

At the same time, the Budget will continue to address the need to transform the economy into a high income one. Malaysia will unveil its new 5-year road map on June 10 next year under the 10th Malaysia Plan, a crucial document on the need to revamp its economic model.

It was just a few months ago that the price of oil was US$40 a barrel. A few days ago, it hit US$80 a barrel, its highest in about a year. This is US$20 shy of the US$100 mark, a price many once thought the imagination could only belong to an analyst.

Well, that Goldman Sachs analyst, Arjun Murti, probably had a big bonus last year when oil hit a record US$147 in July. He made the US$100 a barrel prediction in 2005. Last year, he made another forecast that oil could hit US$200 in two years or by the end of 2010.

The year 2008 was not a good one for Malaysian drivers because the price of petrol was allowed to spike as the government cut its subsidy. But the subsequent slump in oil prices meant that the government could afford to foot the subsidy bill.

Now that oil price has doubled in mere months, we really have to think about our long-term needs. Can we afford to continue fuel subsidies? Are we prepared for a future with expensive oil? Where do we stand in the so-called green revolution?

The short answer to question one is no, not at this level. Fuel subsidy is probably needed for public transport and for small-engine motorcycles but car owners will eventually have to live with more expensive petrol. Clearly the government needs to spend more money to keep its people safe from crime, improve public transport and the education system to produce the much-needed workers for industries of the future.

The current global recession will not make it easier for the government to organise its finances. However, it does provide the government with a unique chance to lower its subsidies and give to those who really need them.

The answer for question two lies in Budget 2010, which will be presented today. The government needs to send a message that Malaysians must learn not to depend on subsidies and prepare for the transition to a high-income economy. I believe Tan Sri Amirsham A. Aziz, chairman of the National Economic Action Council, was right when he said that measures under Budget 2010 will send signals to investors about Malaysia’s long-term direction.

And what of question three? I think it is still too early to answer that question, but we need to carefully plan where we want to be in the overall scheme of the green industry. So far, we have successfully attracted a few major foreign investments in renewable energy like solar panel makers, but we are very far behind when it comes to our own targets for green energy.

Sabah, Sarawak planters need more foreign workers

October 21, 2009 1 comment

This newsreport by Berita Nasional Malaysia (Bernama) appeared in Business Times pullout today.

OIL PALM planters in Sabah and Sarawak may soon recruit workers from China, Bangladesh and the Philippines. “This is our effort to ensure sufficient workers in addition to those from Indonesia,” the East Malaysia Planters’ Association (EMPA) chairman Othman Walat told reporters in Sibu, Sarawak last night.

He said, although the Chinese workers were an untested group, historically they had been employed in the country’s tin mining industry in the early 1900s. Filipino workers, including graduates, are already employed in many Sabah mills. Estates in Sabah and Sarawak now account for 40 per cent of total oil palm plantations in the country.

Meanwhile, figures from the Statistics Department revealed that last year, the oil palm industry employed 369,290 foreign and 196,480 locals workers. In 2007, there were 186,110 locals and 348,272 foreigners.

Othman said most locals shunned jobs in the industry because of perceived low pay. “But plantations these days are offering productivity-based renumerations. A harvestor, for instance, can earn between RM1,500 and RM2,000 per month, depending on the quantity and quality of bunches he harvests. A family of three working together can earn up to RM3,000,” he explained.

He also said Sarawak would be the new growth area for oil palms although at a slower pace as suitable land in Sabah is dwindling. He highlighted that as of the end of 2008, Sabah had about 1.3 million hectares under oil palm while Sarawak’s planted area measured 744,372ha.

On the recent attempt by certain environmental activists to stop the planting of oil palms on peat soil in the two states, Othman said this was motivated by economic factors rather than genuine concern for the environment.

“Have those people concerned done enough studies to come to the conclusion that planting oil palms on peat area is really harmful to the environment due to the gas emission problem? This problem is also caused by the cattle rearing in developed countries. Should cattle rearing be stopped, too?” he asked.

On another issue, he hoped Prime Minister Datuk Seri Najib Razak would consider lowering various palm oil taxes when presenting Budget 2010 this Friday.

Othman called on more planters, especially the smallholders in the state, to join the association to form a stronger voice. EMPA now has 104 members, of which 92 are from Sabah and the rest in Sarawak. – Bernama

Palm oil exports this year seen at RM50b

October 13, 2009 Leave a comment

MALAYSIA’S palm oil exports are expected to fetch about RM50 billion this year, its first annual drop in four years, as current prices at RM2,200 per tonne is only half of last year’s record high.

“It is likely to be lower than last year’s record high, but higher than in 2007, provided palm oil prices are sustained at current levels,” Malaysian Palm Oil Board (MPOB) chairman Datuk Sabri Ahmad said.

Last year, palm oil exports reached an all-time high of RM65.2 billion. “The last time we saw a dip in exports was in 2005. Prices then were somewhat subdued compared to the previous year,” he told Business Times in a telephone interview yesterday.

While export value is likely to dip this year, it is important for Malaysia to gain global market share.”Indeed, palm oil is a value-for-money food ingredient serving the mass global population. In terms of volume, we’ve shipped out 11.7 million tonnes, 5 per cent more than in the same nine months last year,” Sabri said.

Having just returned from a palm oil trade mission to the US, Sabri said there was still a lot of untapped market potential in the US. “In California alone, there is a sizeable ethnic population to whom we can introduce blended cooking oils with added phytonutrients,” he said.

From January next year, restaurants in California are required by law to get rid of trans fat from their menu. Palm oil can be blended with other vegetable oils to make trans fat-free baking fats and deep-fry oils.

According to the latest update from the MPOB, Malaysia exported RM36.5 billion of palm oil in the first nine months of this year. The top five buyers were China, Pakistan, India, the US and Europe.

Malaysian Palm Oil Council chief executive Tan Sri Yusof Basiron, in a separate telephone interview, agreed with Sabri about the potential of the North American market. “In a globalised market, palm oil is increasingly seen to complement soyabean. Journalists and analysts like to say palm oil is in direct competition with soybean, but, in reality, food manufacturers prefer blended oils and fats,” he said.

Yusof explained that oils and fats were usually blended to meet the American Heart Association’s recommended dietary oil requirements to improve blood cholesterol ratio. Essentially, the blended edible oil should contain an equal composite of saturated, mono-unsaturated and poly-unsaturated fatty acids.

Hazards of being a stockbroker engaged in e-trading

October 10, 2009 Leave a comment

Shares of Kuala Lumpur Kepong Bhd (KLK) leapt 24 per cent to RM17 in the last 10 minutes of trade, on heavy volume, on 5th Oct 2009.

Not long after the market closed, however, Bursa Malaysia said it received a request to cancel a trade for the stock, arising from a “participant’s error”. It later told brokers that it had reviewed the request and decided not to approve it. The stock exchange also said KLK’s sudden share price jump was brought about by “matching of market orders at the pre-closing phase of the day”.

Today, my boss Mustapha Kamil wrote a commentary on this incident.
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IT HAS got to be a hazardous job being a stockbroker. One moment of a lack of concentration and there goes half a million ringgit.

Earlier this week, a broking house made a costly error, not necessarily in making an investment decision but more towards execution of the trade itself. Nobody knows what exactly happened, but the bungling brokerage paid dearly.

But mistakes like this happen and being a trader, especially those engaged in electronic market trades, is not always a walk in the park. Assuming all stockbrokers genuinely care for their clients and not just their commissions (they earn when you buy or sell), or in the case of forex traders, care only for how much spreads they make on a trade, any kind of broker will devote all his time towards ensuring that the client makes a profit and avoids a loss.

For stock and currency brokers, they manage and review their clients’ portfolios, based on the constant research they carry out on securities, the economy and all other matters that could affect investor sentiment and the investment itself.

Armed with this information, they advise their clients and, with permission to proceed, will then buy or sell on the exchange. Today, much of trading is performed electronically; and to become a successful and perhaps useful stock or currency broker, speed is of the essence. The broker must be able to cope with a large volume of incoming information at any one time, working swiftly without losing any accuracy.

A political or economic event can suddenly move a market, leading to frenetic trading without notice. In such a volatile situation, and with millions usually resting on what the broker decides upon, the ability to cope with pressure is critical. Unfortunately, not all can withstand the demands of the job.

A forex trader friend, who once traded for Citibank in Kuala Lumpur, said bladder problems are common among currency traders because they dare not leave their trading screens to even ease themselves. Those who engage in overnight trades are even worse off as the currency market is like a 7-Eleven store: it never closes.

But for some, it is this living on the edge and walking on thin ice acts that continues to drive them. They are the adrenalin junkies who spend their days and nights trying to beat the market. Perhaps, in the thick of action, at times they suffer lapses in concentration. That was probably what happened to the unfortunate broking house this week.

For traders, be they those who trade in stocks, bonds, currencies or even insurance, the computer is heaven-sent. With one touch of the keyboard, a trader can move hundreds of millions across the trading floor, and across continents in the case of currencies.

But still, the computer is only as clever as the guy sitting in front of it. Traders at times talk about the perils of working with computer keyboards. Beware before pressing the “Enter” key on a computer keyboard, for it is an irreversible action.