Written by Benjamin Low and sourced from http://www.palmoilhq.com/
KUALA LUMPUR (Dow Jones) — Flush with cash after a recent rights offer raised RM1.16 billion, IOI Corporation Bhd, Malaysia’s second largest palm oil producer by market capitalisation, is on the prowl for acquisition targets including Indonesian palm oil estates and land for property development.
IOI is among several major plantation companies in the region, including Singapore’s Golden Agri Resources Ltd, that embarked on capital raising exercises in recent months in preparation to shop around for potentially beaten-down assets in the wake of the global recession.
The rights offer helped IOI increase its cash pile to RM4.2 billion as of the end of 2009, which means the company is well placed to start ticking off items on its shopping list.
High on that list are planted Indonesian palm oil estates, said Lee. The company is interested in buying planted estates because it already has plenty of greenfield land that’s ripe for palm oil development following its venture into Indonesia in the last fiscal year.
In addition, IOI is also eyeing “small acquisitions of land for property development, both locally and in select developed markets overseas like Singapore,” he said. The search for more land comes as the company prepares to officially launch its maiden property project at Singapore’s Sentosa Cove in April.
Sentosa Cove is a 50:50 joint venture with Ho Bee Investment Ltd. A preview sale of limited units was held over the past weekend and the response has been encouraging, Lee said. “We sold more than 50% of the units released for sale and the (selling) price was above what we were looking at even before the (economic) crisis,” Lee said, adding the project will have a sales value of S$1.1 billion.
Lee declined to elaborate on the expected timing of any acquisitions, adding that plans haven’t been finalised. He also signalled that the company is optimistic about the prospects for its mainstay palm oil business after adverse weather conditions last year resulted in challenging conditions for Malaysian plantation companies. Unusually wet weather in the earlier part of the year followed by the onset of dry conditions in the latter half wrought havoc on the productivity of the country’s palm oil trees.
This meant that IOI was hit by a drop in oil palm fruit production in the first half of its financial year ended Dec 31, 2009. However, the company, which has a matured oil palm area of about 140,000 hectares, is confident that crop output will recover in its fiscal second half, with the improvement potentially strong enough to help the group claw back the earlier deficit.
“On a (financial) year-to-date basis, yields are down 6% from a year earlier, mainly because of the weather. However, we feel confident that there will be an improvement in the second half of the financial year,” Lee told Dow Jones Newswires.
With the recovery, “we are hopeful that production this year will be the same as production last year because the effect of the weather is over,” he said. Having endured a prolonged period of flat, if not lower, production, IOI expects growth to resume in its next financial year ending June 30, 2011 at a moderate pace of 3%-5%, Lee said.
He, however, cautioned the El Nino weather phenomenon, which can cause drought-like conditions, remains a threat that could yet put paid to hopes of a recovery in production. “Nevertheless, lower production will not have an effect on our financial performance in the current financial year because prices will more than compensate for it,” he said, citing an average crude palm oil selling prices of RM2,400 per metric ton so far in 2010, up from the average of RM2,240 last year.
“We are pretty confident that the price will go higher. There is more upside,” he said, declining to provide a detailed forecast. At the same time, production costs, which rose significantly in 2008 in tandem with a surge in fertilizer prices, have since eased, Lee said. “The cost of production now is some 20% lower than in 2008,” he said, adding that costs are expected to hold at around current levels. He declined to provide details on the actual cost.
In Indonesia, IOI aims to aggressively step up its plantation development programme, Lee said. The group owns a 67% stake in a joint venture for oil palm cultivation in Kalimantan. Since work started in the 2009 financial year, the joint venture has so far planted an area of 5,000 hectares. The pace of planting is expected to pick-up significantly in the coming years.
“Over the next 5 years, we aim to plant at a rate of 10,000 hectares per year, giving us a total planted landbank of 65,000 hectares in six years,” he said. IOI’s has set annual capital expenditure of RM250 million for plantation development, covering its landbank in both Malaysia and Indonesia.
This newsreport by Reuters appeared in Business Times pullout today.
MALAYSIA’s petroleum companies are expected to bear the extra cost of selling diesel blended with palm methyl ester from June 2010 to kick-start sales of the green fuel, after a four-year delay.
The world’s No. 2 palm oil producer has struggled to implement a mandate to push the blended fuel and support the palm oil industry that was first introduced in 2007 as the government was reluctant to subsidise biofuel blends to match diesel prices at the pump.
Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said yesterday that B5, a blend of 5 per cent palm methyl ester and 95 per cent regular diesel, will be introduced in stages, starting from Selangor, Kuala Lumpur, Putrajaya, southern Perak, western Pahang, Negeri Sembilan, Melaka and northern Johor.
“B5 will support palm oil prices and enable planters, especially the smallholders, to reap economic benefits,” Dompok told reporters after the launch of the Sime Darby Group biodiesel fuel, Bio-N (pronounced Beyond), at the company’s biodiesel plant in Pulau Carey, Selangor.
Eventually, B5 will be extended to other states and take up 500,000 tonnes of the country’s total annual crude palm oil production. Traders said the announcement briefly supported Malaysian crude palm oil futures before market players turned their focus to lower crude oil and soyaoil markets.
“The government has been flip-flopping over this issue. It gives a good support base for the market, but it remains to be seen if it will actually be implemented,” a trader with a local brokerage said.
Dompok said the government will bear the cost of developing six petroleum depots with blending facilities at a cost of RM43.1 million. In turn, oil companies like Petronas, Shell, ExxonMobil and Caltex, will have to subsidise palm-based biofuel blends at the pump, he said.
Petroleum diesel retails at RM1.70 a litre, a price regulated by the government and among the lowest in Asia. Any increase in petroleum prices is politically sensitive. Local biofuel manufacturers say blending 5 per cent palm methyl ester into diesel increased prices by between 2 and 6 sen a litre over petroleum diesel.
Dompok said Malaysia has approved 56 licences for biofuel production, for a total capacity of 6.8 million tonnes. Last year, the country produced 227,457 tonnes of palm-based biofuels that garnered export earnings of about RM606 million. – Reuters
OIL PALM plantation owners in Sabah face increasing cost of doing business due to the slow trunk road upgrade between major towns and labour shortage. They said they have suffered from slow transport of oil to the ports for shipment and shortage of labour to harvest fruit bunches for almost a decade.
“The government should speed up upgrading of trunk roads here to handle heavy loads of produce. We now face congestion problems,” said Kam Cheong Plantations Sdn Bhd director Cheong Sung Yan. He is also the Incorporated Society of Planters (ISP) Sabah’s northeast branch chairman.
“This has been a long recurring problem that oil palm planters here face. We want to see the government eliminate red tape in the application for foreign labour because it is adding unnecessary cost to doing business,” he said.
Sabah government is not opposed to the idea of linking up biomass power plants to ease electricity shortage in the eastern region of the state, if it proves to be commercially viable.
The oil palm industry is proposing a link up some 100 palm oil mills in Sabah to generate power from biomass plants.
“Power generation from biomass is good for the environment but it is not the only solution. We can explore all possibilities to ease power shortage in Sabah,” state Minister of Tourism, Culture and Environment Datuk Masidi Manjun said.
“We await the feasibility study by the Malaysian Palm Oil Board (MPOB) to assess the power distribution efficiency,” he told reporters after officiating at the Biodiversity and Conservation in Plantations 2010 workshop, organised by the Malaysian Palm Oil Council (MPOC) and the Incorporated Society of Planters (ISP), in Sandakan yesterday. “The study also needs to find out how much investment is needed to link up some 100 palm oil mills in Sabah to generate ‘green’ electricity from biomass,” he added.
According to the MPOB, there are 417 palm oil mills in the country, out of which 121 are in Sabah.
Mills emit greenhouse gas like methane from the retention ponds after oil extraction. Estate owners can trap methane from the mill sludge and reuse discarded empty fruit bunches as a renewable source of clean energy to fuel steam turbines and generate electricity. Biomass and biogas technology are available. Currently, utility giant TNB buys renewable energy at 21sen/KWh from green independent power producers such as biomass plant owners.
Also present at the workshop were MPOC deputy chief executive Dr Kalyana Sundram and ISP vice-chairman Charles Chow.
“Out of these 121 mills, we can identify 30 that are within close range of the power grid. If these 30 mills can generate 10MW each, it will be enough to supply 300MW. Therefore, we feel there is no need for the proposed 300MW coal-fired power plant. The MPOB cess that we pay should come back as technical help to re-engineer our palm oil mills to be efficient power generation plants,” Chow said. “We want to adopt a zero-waste policy and this is an opportune time to come up with a comprehensive energy policy for Sabah,” he added.
Sabah Electricity Sdn Bhd, which is 80 per cent owned by TNB, faces tremendous pressure to step up power supply in the eastern part of the state. Sabah is the only state in the country that has long suffered from frequent power disruption.
Malaysia has a System Average Interruption Duration Index (Saidi) target that tracks the number of minutes consumers experience power failure in the state. Sabah recorded a high rate of 2,870 minutes/consumer annually at the end of last year. Demand for electricity in Sabah is 750 MW, while the state can generate 800MW. However, an additional 20-25 per cent of power supply is needed to ensure reliable supply.
Last week, Energy, Green Technology and Water Minister Datuk Seri Peter Chin Fah Kui pledged that electricity interruption in Sabah would be considerably reduced to 700 minutes/consumer by the year-end, failing which he would step down from office.
CHINA’S Dalian Commodity Exchange (DCE), which currently settles an average of 300,000 refined, bleached and deodorised (RBD) palm oil contracts a day, plans to lower transaction fees by 25 per cent to woo more trades.
“We’re looking at reducing settlement fees from RMB4 to RMB3 per contract to make it more attractive for traders. That’s a 25 per cent discount,” said DCE senior manager Wang Yun Tao.
He said any development of new products for the exchange takes time as it involves a host of stakeholders’ interests and regulatory approvals.
THE Palm and Lauric Oils Outlook Conference (POC 2010) was a lot more crowded than last year and — there were more Americans.
The higher turnout was in anticipation of CME Group announcing the launch of its new US dollar-denominated cash-settled CPO futures contract, called CUPO, on CME Globex electronic trading platform. Traders in Chicago get to trade CUPO from May 23 this year but those in Kuala Lumpur, on May 24, due to the time difference.
CME Group vice-chairman Tim Andriesen said the opportunity to work with partner Bursa Malaysia enables it to offer a contract that meets the growing demand for trading palm oil, one of the world’s most widely used commodities, on CME Globex, the same electronic trading platform as CME Group’s existing suite of agricultural products.
“Food processers, commercial firms and other multinational companies that use crude palm oil and trade in US currency now have an alternative for hedging that risk,” he told an audience of 1,800 traders and oil palm planters from some 50 countries who flew in to Kuala Lumpur this week.
Andriesen also said that the creation of its US dollar futures contract for palm oil would create opportunities for cross-trading with soyabean oil, based on the historically strong correlation between these products. Together, palm oil and soyabean oil account for about 61 per cent of all edible oils in the world.
True to the theme “Global Connectivity – Raise the Game”, it was a historic moment as Bursa Malaysia Derivatives moved closer to integrate its trading platform with CME Group, the world’s largest derivatives exchange for grains, livestock, oilseeds, dairy and timber.
At the gala dinner, Kenanga Deutsche Futures Sdn Bhd, a subsidiary of K&N Kenanga Holdings Bhd, emerged the best overall performer for the seventh consecutive year in attracting the biggest trades into Bursa Malaysia Derivatives Exchange.
“We strive to challenge ourselves to maintain our position as the leading futures brokerage in Malaysia,” Ng Chin Leng, executive director of Kenanga Deutsche Futures Sdn Bhd, said at the award ceremony.
All in, brokers and traders agreed that the POC series has become more vibrant.
WELL-RESPECTED and authoritative vegetable oil analysts Thomas Mielke and Dorab Mistry have rejected calls by green activists like Greenpeace for a moratorium on oil palm planting in Indonesia and Malaysia.
They urged some 1,800 participants at the 3-day Palm and Lauric Oils Conference and Exhibition (POC 2010) not to be misled by green activists’ lobby for a limit on the expansion of oil palm plantations. The conference, which traditionally focused on price forecasts for palm and coconut oils, has now taken a more holistic approach.
“Global vegetable oil stocks are tight,” Mielke said, adding the world’s burgeoning population would need more food and fuel in the years ahead.
“If there is a limit on expansion of oil palm planting, vegetable oil prices will soar to such unreasonable levels that more poor people will go hungry,” Mielke added.
Mistry, meanwhile, hinted that Greenpeace’s selective lobby against palm oil could actually turn out to be trade barriers disguised as environmental concerns. “The moratorium talk on oil palm plantings within the Roundtable on Sustainable Palm Oil (RSPO) can have dangerous consequences. The industry is not yet ready … the world is not able to expand soyabean areas and, therefore, needs more palm oil,” he said.
“Since the begining of this year, the sale of Geen Palm Oil certificates has picked up. This is an excellent development. The RSPO has done a commendable job, so far, but it needs to proceed cautiously in measured steps.
Mistry went on to question the consequence and motive behind the anti-palm oil lobby by Greenpeace and affiliates. “Are we going to restrict vegetable oil consumption to the rich few and deny it to the many poor?
“Is this what we mean by caring for the planet and its people or shall we rephrase it to say — We care for a part of this planet and a portion of its people?” Mistry questioned.