KUALA LUMPUR: FELDA Global Ventures Holdings Bhd (FGV) may sell its 20 per cent stake in Tradewinds (M) Bhd, worth an estimated RM551.5 million, to fund future land expansion.
FGV president and chief executive officer Datuk Sabri Ahmad said if the company decides to sell the stake, the proceeds will be used to fund upstream expansion, namely to buy more plantation land.
It is interesting to note that apart from being the largest crude palm oil producer in the world, FGV is also Malaysia’s Sugar King. In January 2010, FGV bought over Robert Kuok’s entire sugar business in Malaysia and a 20 per cent stake in Tradewinds (M) Bhd for RM1.8 billion.
“We will evaluate the situation and seek advice from investment banks. Then we will table the matter at the board of directors meeting next month,” Sabri told Business Times over the weekend.
Sabri was commenting on Tan Sri Syed Mokhtar Al-Bukhary’s plan to take Tradewinds private, of which, sources said, will be restructured into four separate entities – rubber, sugar, oil palm and rice.
Syed Mokhtar, a low-profile businessman and Malaysia’s seventh richest man announced last week he is taking over Tradewinds by offering shareholders RM9.30 for every share he does not own in the company.
The whole deal is also expected to lead to the privatisation of Tradewinds Plantations Bhd and Padiberas Nasional Bhd (Bernas).It is expected to cost RM2.5 billion.
“I think it makes sense for FGV to sell the stake rather than keep it because at 20 per cent, FGV does not have management control over Tradewinds. With proceeds of over RM550 million, it is better for FGV to buy controlling stakes in many other companies,” said a Tradewinds source, who declined to be named.
According to a news report last week, FGV is expected to reap a 188 per cent or RM390.2 million return on investment from its strategic acquisition in Tradewinds in January 2010. Should it decide to sell its entire stake in Tradewinds at RM9.30 a share, government-linked FGV stands to reap a windfall of RM551.5 million.
It was also reported from January 2010 to date, FGV has received net dividends amounting to RM46.3 million from its 20 per cent equity in Tradewinds.
FGV is one of Malaysia’s largest plantation company and yet, it is a unique entity because it leases and manages 500,000ha of oil palm land for the country’s 112,635 smallholders.
SEPTEMBER 11 2011 is the date Palm Oil Refiners Association of Malaysia (Poram) members will always remember.
It was the day the Indonesian government announced its intention to widen the tax gap between crude and refined palm oil.
This made crude palm oil (CPO) and crude palm kernel oil very cheap for downstream businesses in Indonesia. On top of that, processed palm oil in the form of cooking oil, soaps and detergents shipped out from there are minimally-taxed.
Indonesia’s move, since October 2011, created an unfair playing field as refiners in Malaysia found it difficult to source for affordable feedstock.
Price cutting ensued as refiners, oleochemicals, specialty chemicals, specialty fats and biodiesel producers in Malaysia fight for their survival.
As downstream businesses in Malaysia bled losses, those in Indonesia laughed all the way to the bank. Oil palm planters in both countries, however, have to contend with falling prices.
Poram chief executive officer Mohammad Jaaffar Ahmad noted that besides refiners in Indonesia, the biggest gainers are palm oil consumers around the world, while the biggest losers are oil palm planters in Malaysia and Indonesia.
“With falling prices, it’s not a surprise that palm oil exports is not able to match last year’s record high of RM80 billion,” he said.
In the first 11 months of this year, the Malaysian Palm Oil Board reported the country had only shipped out RM65.89 billion worth of palm oil products.
China, Malaysia’s biggest palm oil client had, so far, only bought 3.15 million tonnes. This is a 14 per cent shortfall from 3.67 million tonnes, posted a year ago.
Jaaffar noted China imports more than three quarters of its cooking oils and bakery fat demand. Palm oil is the second most consumed there after soyaoil.
Last week, Oil World forecasts China likely to import 61.7 million tonnes of soyabeans from the United States, Brazil and Argentina next year, four per cent more than this year’s 59.2 million tonnes.
Jaaffar explained that in the last few years, China had started to import more soyabeans instead of soyaoil because it wants more crushing of soyabeans to get more soyameal to feed its pig, cattle, dairy and poultry farms.
On the other hand, India, Malaysia’s second biggest market, bought 2.35 million tonnes of palm oil. This worked out to be 53 per cent more than last year’s 1.54 million tonnes. Higher shipments into India was prompted by policy changes in India and Malaysia.
Since July 2012, India, which imports more than half of its total vegetable oil consumption of about 16 million tonnes a year, ended a six-year freeze on the base import price of refined palm olein, allowing easier imports of CPO.
At the same time, the Malaysian government waived export duty on five million tonnes of CPO, assuming more CPO exports to India would drive down stock level and prompt palm oil prices to rise again.
It, however, did not materialise. This is because the exports of more duty-free CPO dimmed the investment climate for refiners.
“Poram members operated at half capacity and this itself was strong enough justification to keep CPO for downstream businesses. Every tonne of duty-free CPO exports resulted in loss of market potential for every tonne of refined oil,” Jaaffar said.
“It was not just the sacrifice of CPO because refiners also produce olein, stearin, palm fatty acid distillate and palm kernel oil for the oleochemical, specialty chemicals, specialty fats and biodiesel sectors,” he added. Ancillary services supporting these businesses such as logistics, packaging and bulking facilities continued to suffer.
As palm oil stock level continues to rise and prices suddenly plunged in October, the government was compelled to respond to refiners’ plea.
But then again, the policy change to lower the tax from the 23 per cent and stop exports of duty-free CPO was not immediate. “It’s better late than never,” Jaaffar heaved a sigh of relief.
From tomorrow onwards, the 2013 palm oil tax structure will be lowered from 23 per cent to stagger at between 4.5 per cent and 8.5 per cent. If palm oil price hovers between RM2,250 and RM2,400 a tonne, the tax is 4.5 per cent. And if the palm oil prices were to jump to RM3,450 per tonne, the tax is 8.5 per cent.
Designed to fluctuate on a monthly basis, February’s palm oil tariffs will be announced on January 15.
Jaaffar said since Malaysia’s new palm oil tax structure will be similar to that of Indonesia, refiners here would stand a better chance to buy up more CPO and reduce the current high stock levels in the country. This will spur refining activities and players would be able to reap economies of scale and make some money to stay in the business.
Asked on the outlook for 2013, Jaaffar expressed cautious optimism. His reservation stems from possible rejection of palm cooking oil shipment to China.
Every year, China’s food processing companies spend billions of dollars to buy close to four million tonnes of the kitchen staple from Malaysia. “Effective January 1 2013, palm oil shipments into China that do not meet the 2009 edible oils quality control specification will be turned away,” said Jaaffar.
Despite Poram’s appeals on the practicalities of trading in meeting China’s Inspection and Quarantine Bureau specification, it seems “off-spec” shipment can no longer be re-refined at its shores. This is not in line with trading norms.
Jaaffar is concerned China’s move may re-ignite similar demands from other palm oil clients. As early as in the late 1970s to early 1980s, trading corporations in Pakistan and India had demanded for guaranteed landing quality and weight without wanting to pay for cost-adding arrangements.
If palm oil exporters were to surrender to demands that are not of the usual business practice, this exposes them to risks of being manipulated without any explicit avenue to legal redress or compensation. “What redress can our members avail to?” he asked.
With a heavy sigh, Jaaffar said Poram has no choice, but to advise exporters to be cautious when selling palm oil to China. “Our members will be trading at their own risks.”
“Based on information given by Chinese authorities, only five per cent of the shipments did not meet the specifications,” said MPOB director-general Datuk Dr Choo Yuen May.
“Analysis of these shipments showed that non-compliance is mostly related to excessive free fatty acids,” she said in an email to the New Straits Times.
These off-specification shipments were likely to have been shipped from Malaysia when the quality of oil was near expiry but still within the limits set by Palm Oil Refiners’ Association of Malaysia (Poram). “This would result in the oil being non-compliant with China’s specifications when it reached the seaports there.”
Choo was responding to concerns raised by Poram that enforcement of China’s new quality control rules exposes palm cooking oil shipments to risks of rejection for reasons exporters have no control over. This dilemma is seen to have wide implications because China is Malaysia’s biggest trading partner.
One of Malaysia’s significant exports to China is palm oil for use by food processing companies.
Every year, China spends some US$4 billion (RM12.3 billion) to buy close to four million tonnes of the kitchen staple from Malaysia.
Poram chief executive officer Mohammad Jaaffar Ahmad reportedly said China’s enforcement of the new rules from Jan 1, was not the usual business practice and could open the floodgates for other palm oil importers to demand the same. This indirectly puts exporters at risk of being manipulated by clients without any explicit avenue to legal redress or compensation.
Palm oil shipments into China that do not meet the new specifications would be turned away. “We were told that off-spec shipments will no longer be allowed to be re-refined on China’s shores. What redress can Malaysian exporters avail to? This leaves Poram no choice but to advise members to trade at their own risk when selling palm cooking oil to China,” Jaaffar said.
Choo assured palm oil exporters that MPOB’s office in Shanghai had been engaging China’s Administration of Quality Supervision, Inspection and Quarantine body to extend the enforcement grace period for the 2009 rule.
The Chinese authority, however, reiterated that the enforcement was applicable to all imports of edible oils. This move is fuelled by China’s efforts to improve the safety and quality of imported products.
Choo said palm oil exporters had to comply with China’s quality controls as the 2009 standards were internationally harmonised. “MPOB can only do its part if the standards imposed proved to be discriminating against palm oil,” she said.
A few months later, at the next press conference I knew better to stand behind other journalists and shout my questions from afar to Dr Lim.
He craned his neck and swayed from side-to-side to figure out who was asking the question. “I cannot see you, come nearer la.”
I reluctantly waved my right hand in the air and peeked from behind this big and burly cameraman from TV3. Dr Lim grinned and wagged his pointer finger. “I remember you… the new girl!”
Jokes aside, Dr Lim took on his ministerial tasks seriously. He would always go to the ground whenever there were issues with the commodity sector, especially when prices start to slide.
In 1999, Dr Lim was instrumental in propping up plunging rubber prices by rallying the top three rubber producers, namely; Thailand, Indonesia and Malaysia to stock up and release the supply to the market gradually.
Dr Lim was a super-salesman as he helped popularise palm oil all over the world. He introduced a credit scheme to exchange palm oil for Cuban sugar and Russian jets and spare parts. When times were tough, Lim made sure palm oil was burnt at power stations. As stock levels came down, palm oil prices would rise again and oil palm planters get to earn a decent living.
Dignatories at his funeral, including the King, noted Dr Lim has served the country well. Indeed, many tree planters have immense respect for him as he showed unwavering courage and wit in challenging critics of the oil palm and timber industries at international debates. I, for one, will remember Dr Lim as a minister who’s very clever at driving poignant messages across, in good humour.
“We are unable to yield to China’s cost-adding measures that are not of usual business practice,” said Palm Oil Refiners’ Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad.
This dilemma has wide implications because China is Malaysia’s biggest trading partner.
One of Malaysia’s significant exports to China is palm cooking oil for daily use. Every year, China spends some US$4 billion (RM12.3 billion) to buy close to four million tonnes of the kitchen staple from Malaysia.
It was reported that from Jan 1, China’s Inspection and Quarantine Bureau will start enforcing a new set of technical specifications requiring the quality of imported edible oils to be of “landed quality” instead of “shipped quality”.
Palm oil shipments into China that do not meet the new specifications would be turned away, said Jaaffar.
Explaining the implications of the new rules on imported edible oils, he likened the process to a consumer buying fruits from the supermarket and bringing them home.
“If you buy apples from the supermarket, you accept the quality as it is, at the time of purchase. You do not hold the supermarket responsible if, on the way home, the apples get bruised or deteriorate in quality because of oxidation from the high heat of your car parked under the sun.”
The move seems to hold palm oil exporters responsible for the deterioration of the oil although the price paid is not that of door-to-door delivery. “If the Chinese quarantine authorities want guaranteed landing quality, new cost-adding arrangements have to be paid for.”
Jaaffar said the problem was not new as in the late 1970s to early 1980s, trading corporations in Pakistan and India had insisted on similar demands without wanting to pay for cost-adding arrangements.
“At that time, India and Pakistan wanted guaranteed landing quality and weight. After years of negotiation, we finally came to a compromise to give in to the cargo weight (final) but we cannot offer the quality for the same price.”
Now, this demand, which is over and above trading norms, is being revisited with China.
“We’ve appealed on the practicalities of trading in meeting the new technical specification but the Chinese authorities seem to insist that ‘off-spec’ shipments will no longer be allowed to be re-refined at its shores.
“We are aware that authorities from China and Malaysia need to ensure imported cooking oil remains affordable and safe to consume by China’s 1.3 billion population and, at the same time, reap steady income for palm oil exporters here,” Jaaffar said.
In April last year, during his second official visit to Malaysia, Premier Wen Jiabao promised Prime Minister Datuk Seri Najib Razak closer diplomatic and trade ties.
Even though China had long been running a trade deficit with Malaysia, Wen reportedly said China had no complaints. In fact, China agreed to continue buying Malaysian palm oil. “Malaysia and China are facing economic development challenges. Therefore, with deep cooperation, we can deal with such challenges and fulfil our mutual interests,” Wen reportedly said.
Jaaffar expressed hope that both countries would come up with mutually beneficial arrangements.
“It is in the interest of Chinese consumers that they should be able to go on buying affordable and nutritious cooking oil. It is also in the interest of palm oil exporters that shipments into China should not be rejected for reasons they have no control over.”
When Indonesia changed its palm oil tax structure in October 2011, oleochemical producers in the country gained access to cheaper feedstocks.
On the flipside, the refining community in Malaysia suffered when they found it difficult to source for affordable feedstocks. Price cutting ensued as refiners, oleochemical, specialty chemical, specialty fats and biodiesel producers here fight for their survival.
“Despite the creation of unlevel playing field for more than a year, manufacturers here somehow managed to chalk up more exports,” said Malaysian Oleochemical Manufacturers’ Group (MOMG) chairman Tan Kean Hua.
He said as palm oil futures fell from a high of RM3,600 in April 2012 to RM2,400 currently, it became easier to export oleochemicals.
“We shipped out more volume, albeit at lower pricing, especially in the second half of this year,” he said in an interview in Kuala Lumpur.
Yesterday, the third-month benchmark palm oil futures on the Malaysia Derivatives Exchange traded RM23 higher to close at RM2,431 per tonne.
According to the Malaysian Palm Oil Board, the country exported RM10.64 billion worth of oleochemicals in the first 11 months of this year.
Asked if oleochemical exports are going to hit a record high this year, he said: “We’ll definitely surpass the RM11.5 billion mark by the end of the year.”
It has taken more than a year for Malaysia to change its palm oil tariffs, in response to Indonesia’s tax cut. Effective January 1 2013, Malaysia will lower crude palm oil (CPO) tax from 23 per cent to stagger at between 4.5 per cent 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. And if the prices were to jump to RM3,450 per tonne, the tax is 8.5 per cent. Exports of duty-free CPO will also be prohibited.
If the government had responded earlier with the tax restructure, would Malaysia’s oleochemical exports have been even higher? Tan pursed his lips and tactfully replied: “Let’s not look into the past.”
“With the new palm oil tax structure coming into place, there’s more certainty on the horizon. Apart from CPO, refiners also produce stearin, another feedstock variant that is critical to our members. When refiners produce more of such feedstocks, our members are able to churn out more fatty acids, soap noodles, esters and glycerine,” he added.
MOMG members churn out 25 per cent of the world’s 10 million tonnes of oleochemical demand. There are 18 oleochemical producers in Malaysia with a combined annual capacity of 2.6 million tonnes.
After almost two decades, Malaysia is still the world’s oleochemical hub. This pole position stems from the community of its process engineers and chemists’ expertise to fine-tune ways to turn palm oil and palm kernel oil into more than 100 types of downstream products.
The three oleochemical giants in Malaysia, namely IOI Oleo Group, KLK Oleo Group and Emery Oleochemicals (M) Sdn Bhd, had recently taken to invest further downstream to make more profitable specialty chemicals.
Tan, who is also IOI Oleo executive director, said his company is investing RM130 million to build a new fatty ester and a 20,000-tonne specialty oleo derivative plant at the Prai Industrial Complex in Penang.
KLK Oleo Group reported that it is spending in excess of RM600 million to build an integrated methyl ester sulphonate and fatty alcohol plant in Shah Alam and a specialty fatty ester facility in Klang.
Emery Oleochemicals is pumping more than RM400 million into its Telok Panglima Garang facilities to produce biolubricants, green polymer additives and surfactants.
Apart from the three giants, ICM Specialty Chemicals Sdn Bhd is also investing RM130 million to put up a specialty ester plant in Pulau Indah, Klang. A 55:45 joint venture between Chemical Mate Technologies Sdn Bhd and Italy’s Societa Chimica Lombarda Pte Ltd, ICM’s plant is scheduled to start operations by mid-2014.
In a separate interview, ICM managing director Kenneth Chang Boon Kit expressed the need for a closer public-private collaboration.
He envisions the government setting up a dedicated platform for institutions of higher learning and technical colleges to work more closely with the chemical industry. This way, academicians can update and fine-tune their research and syllabus to that of manufacturers’ needs.
“By pooling our resources together, Malaysia will be able to sustain a critical pool of chemists to work on product development and engineers to design better processing plants,” he said.
In a statement yesterday, the ministry said due to weak CPO prices, there are cases in Sabah where millers are not buying fresh fruit bunches (FFB), thus affecting the income of the commodity producers, especially the smallholders.
“The ministry views this scenario seriously as it will affect the livelihood of smallholders, and together with the Malaysian Palm Oil Board (MPOB), it has set up a hotline to help smallholders who have difficulty in selling their FFBs to millers.”
In a move to reduce national stockpile, the government has also sped up implementation of the B5 programme and encourage other sectors to use palm oil-based fuel up to 10 per cent of their daily fuel.
The ministry and the MPOB will continuously monitor the situation closely and will take action to ensure operations are not disrupted. The phone numbers are: Kota Kinabalu 088-493700; Sandakan 089-224248; Tawau 089-777611; and Lahad Datu 089-867545.