Archive for September, 2012

Budget boon for smallholders

September 30, 2012 Leave a comment
This is written by my colleague Koi Kye Lee.

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

September 28, 2012 Leave a comment
SUBANG JAYA: Southern Acids (M) Bhd is cautiously optimistic of its business prospects as its oil palm estates in Indonesia and oleochemical operations in Malaysia suffer from the impact of Indonesia’s palm oil tax restructure.

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

September 24, 2012 Leave a comment
Mumbai, INDIA: (Bloomberg) PALM oil prices are “sizeably undervalued” in comparison with soyaoil and the discount is unlikely to be sustained as lower prices will prompt importers to buy more palm oil, a top world oils analyst said yesterday.

“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

September 21, 2012 Leave a comment

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

September 15, 2012 Leave a comment
KUALA LUMPUR: Oil palm planter TH Plantations Bhd, a 59.08 per cent subsidiary of Malaysia’s pilgrims fund Tabung Haji, plans to issue a RM1.5 billion Islamic bond with a tenure of 15 years. 

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

September 15, 2012 Leave a comment
KUALA LUMPUR: Indonesia’s palm oil exports are likely to stay flat like last year’s 17.6 million tonnes due to lacklustre economic growth in Europe and the US curb on demand for cooking oil, said Gabungan Pengusaha Kelapa Sawit Indonesia (GAPKI) executive director Dr Fadhil Hasan.

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

September 11, 2012 Leave a comment
PUTRAJAYA: PALM oil prices are likely to climb back to RM3,200 a tonne by year-end, said Jupiter Securities chief market strategist Benny Lee Wan Yu.

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.”