Archive for March 2010

IOI eyes oil palm estates, property acquisitions

Written by Benjamin Low and sourced from

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.

"We have found opportunities to invest in our three core businesses of plantations, manufacturing and properties," executive director Lee Yeow Chor told Dow Jones Newswires in an interview.

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.

Long delayed B5 mandate to launch June 2011

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 planters face rising cost

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.

"Don't forget that Sabah produces about a third of Malaysia's palm oil exports. The trunk roads linking Kota Kinabalu, Sandakan, Lahad Datu and Tawau are congested. The road system is bad, it needs to be upgraded," he told Business Times on the sidelines of a workshop organised by the Malaysian Palm Oil Council and ISP in Sandakan yesterday.

Oil palm plantation owners in Sabah pay cess to the Malaysian Palm Oil Board, income and corporate tax to the Finance Ministry, workers' levy to the Home Ministry and 7.5 per cent sales tax to Sabah government.

"We pay so much tax to the government, (but) what do we get in return? We hear announcements that hundreds of million ringgit had been allocated to build and upgrade roads here but ... until today, implementation remains to be seen," Cheong said.

Two months ago, the Rural and Regional Development Ministry had said that it will spend about RM2.1 billion to provide rural basic infrastructures in Sabah and Sarawak under the National Key Result Areas (NKRA) this year. Its minister Datuk Seri Mohd Shafie Apdal had said the allocation also involved the completion of last year's projects to build new roads and provide water and electricity supply. Of the total, about RM928 million would be allocated to Sabah.

For NKRA's rural road projects, Sabah was allocated RM134.9 million to complete 40 of last year's projects and another RM56.8 million to implement 36 new roads.

On labour shortage, Cheong said the government's frequent change in the method of foreign labour application is burdening oil palm planters. "(Of course) if we can help it, we want to be on the safe side of the law. But to legalise foreign labour, we need to approach five or six government agencies and it costs us RM2,000 per worker. That works out to RM2 million to legalise 1,000 workers," he said.

While oil palm planters support the government policy to employ more locals and enhance mechanised harvesting on the estates, the reality is far from expectations. Cheong said that young locals entering the labour market are just not interested in menial jobs like harvesting of oil palm fruits.

"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.

Green option to ease Sabah power shortage

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.

Dalian to cut fees to woo heavier palm oil trades

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.

"We'll be conducting hedging seminars to some 1,000 enterprises that buy RBD palm oil for their factory use.

"Through this we hope to attract more traders and more volume at our exchange," he told Business Times when met at the Palm Oil Outlook Conference 2010 in Kuala Lumpur.

Daily settlement of RBD palm oil contracts at DCE improved tremendously since its launch in October 2007.

"When we first started, we were seeing  some 15,000 palm oil contracts a day. Nowadays, it averages at around 300,000. We hope to see heavier daily trades at 400,000 contracts by next year" he added.

Earlier, CME Group and Bursa Malaysia announced the launch date of the jointly-developed US dollar-denominated cash-settled CPO futures contract to be traded in Chicago and Kuala Lumpur simultaneously. Asked if DCE may want to seek a similar tie-up, Wang said, "We're always open for discussion, we don't rule out that possibility. For now, there is no such specific plans. "

He said any development of new products for the exchange takes time as it involves a host of stakeholders' interests and regulatory approvals.

Bigger crowd, more Americans at palm oil meet

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.

Vege oil experts: No to oil palm planting moratorium

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.

"Don't be lulled by the lobby for a moratorium on oil palm planting. Contrary to what Greenpeace is saying, there is just not enough vegetable oils to go around.

"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.

Not all bullish on palm oil price trend

TWO palm oil industry gurus have issued forecasts that are generally less bullish on crude palm oil (CPO) prices this year, predicting them to hover between RM2,400 and RM2,900 a tonne.

"Current palm oil prices are already reflecting the fundamentals. I think prices may be close to their highs if there are no additional bullish factors like further yield damage from the prolonged dry weather. I don't expect prices to surpass RM3,000 per tonne, though," Oil World editor Thomas Mielke said at the annual Palm and Lauric Oils Conference and Exhibition (POC) in Kuala Lumpur yesterday.

"When I say we may not be far away from the peak, I don't mean to be bearish. Prices can shoot up on speculative demand. But I think palm oil prices are more likely to trade between RM2,400 and RM2,900 per tonne, averaging at RM2,550," he added.

On the chances of palm oil trading at a premium over soyaoil, Mielke said: "I don't expect it to, but it is possible. If it does, it won't lasts."

LMC International chairman Dr James Fry also believes that palm oil prices are "already somewhat too high". "I fear we face a double dip recession in Europe. Many governments are cutting budget to reduce deficit borrowings. This will drive up interest rates, which will magnify a recessionary impact," he said.

Fry reiterated his long-held view that palm oil prices would continue to be highly influenced by petroleum prices. "High crude oil prices have encouraged exploration - lifting supply and slowing demand. Palm oil is expected to hover around RM2,600 per tonne, settling to RM2,400 per tonne towards the latter part of the year," he said.

Mielke and Fry's forecasts are in contrast to their counterpart, Godrej Group director Dorab Mistry, who on Tuesday gave bullish comments that palm oil prices could scale new heights in the range of RM2,800 to RM3,200 a tonne after July on the prevailing El Nino conditions, Malaysian government's ongoing replanting scheme and tree stress.

Meanwhile, the Malaysian Palm Oil Board's latest statistics showed the CPO output in January and February was 2.48 million tonnes, about 40,000 tonnes less than the same two months, a year ago. However, monthly palm oil exports have been relatively strong at more than RM4.3 billion compared with last year's average of RM4.1 billion.

Palm oil futures trade on Bursa Suq Al-Sila may quadruple

Stock exchange regulator Bursa Malaysia Bhd expects trading volume on its commodity Murabahah exchange to possibly quadruple this year, as it admits more Islamic banks from the Middle East as members.

The exchange, known as Bursa Suq Al-Sila, is a global trading platform that enables banks to buy and sell commodities to facilitate Islamic finance. It commenced business last August and is open only to members.

Crude palm oil (CPO) now trades on the exchange, but this will expand to include non-precious metals later this year, Bursa's global head of Islamic markets Raja Teh Maimunah Raja Abdul Aziz said.

"I hope to triple, quadruple (the volume of trades) ... that's the whole idea once we get the Gulf Cooperation Council (GCC) markets by this year," she told reporters after her presentation on the use of CPO in Islamic finance at the Palm Oil Outlook Conference 2010 in Kuala Lumpur yesterday.

The volume of trades on Bursa Suq Al-Sila in January 2010 alone has already exceeded that of the entire 2009, she said, adding that the volume further improved in February. Raja Teh, however, declined to give specific numbers, except to say that the exchange is benefitting from a rebound in the financial markets.

Cross-border trades are already taking place and the exchange's next move is to admit Islamic banks in the GCC as members, she said. "We have signed a memorandum with Bahrain, specifically with a view of bringing this now to the GCC," Raja Teh said.

Some 90 per cent of local banks are trading through the exchange. Suppliers of the CPO are currently from Malaysia, but Indonesian palm oil producers are expected to come on board sometime this year too, she said.

To provide financing using the exchange, an Islamic bank first has to buy CPO from the spot market and then sell it to the borrower. The borrower then sells the CPO to a third party in the spot market for cash, using the bank as its agent, thus securing the financing. All transactions are based on the syariah principles of Murabahah, Tawarruq and Musawwammah.

Bursa, China hail competition from Jakarta

BURSA Malaysia Derivatives Sdn Bhd and its Chinese counterpart, Dalian Commodities Exchange, said they see Jakarta's impending launch of the rupiah-based crude palm oil (CPO) futures contract next month as healthy competition.

"We welcome more competition. The profile of palm oil is raised internationally with more exchanges introducing palm oil futures. It also jives with our tie-up with CME Group to launch the new US dollar-denominated palm oil futures contract (known as CUPO)," Bursa Malaysia Bhd chief executive Datuk Yusli Mohamed Yusoff told a news conference at the Palm Oil Outlook Conference 2010 in Kuala Lumpur yesterday.

Indonesia has been planning for a local benchmark, which it feels will provide a better reflection of local supply and demand and will eliminate currency risk factors. PT Bursa Komoditi & Derivatif Indonesia, Indonesia's new commodities and derivatives exchange (ICDX), has reportedly said it hopes to succeed rival Jakarta Futures Exchange, which struggles to attract planters to trade CPO on its exchange.

On the launch of CUPO in Chicago on May 23, Yusli said it will boost palm oil's popularity as a reliable and flexible hedging tool. Malaysia is the world's biggest palm oil exporter and has the biggest futures market for the commodity. Malaysia has two palm oil futures products, namely the ringgit-based FCPO contract and the US dollar-denominated FUPO contract.

"Despite the prospects of a more competitive environment, we're confident that the FCPO will remain the global benchmark reference, considering we've had an established transparent trading record of 30 years," Yusli said.

Dalian Commodity Exchange senior manager Wang Yun Tao told Business Times that he sees ICDX's move as a logical and positive development. "We have heard about ICDX's plans and we understand this development is based on market needs. We view this as healthy competition as there is unlikely to be much negative impact in the short term," Wang added.

May launch for CME's dollar-based CPO futures

CHICAGO-BASED CME Group, the world's largest and most diverse derivatives exchange, will launch a new US dollar-denominated cash-settled CPO futures contract, called CUPO, on May 23 this year in Chicago. At real-time, traders in Kuala Lumpur can gain access to this new product on May 24.

"The new US dollar CPO futures contract will be launched on May 24 here (Malaysia)," CME Group commodities managing director Timothy Andriesen told some 1,800 participants attending the Palm and Lauric Oils conference and exhibition 2010 in Kuala Lumpur yesterday.

The CUPO will be traded on CME's platform CME Globex, the most widely distributed electronic trading platform in the world. CUPO price quotes will be based on Bursa Malaysia's settlement ringgit-denominated CPO futures contract, currently the global price benchmark for CPO.

CME Group president Phupinder Singh Gill said apart from running education and awareness programme of CUPO, the exchange will engage market makers in Chicago and Kuala Lumpur. "Market making of CUPO is open to all participants, whether in Chicago or Kuala Lumpur," he said.

Market-makers are usually brokerages and banks that accept risks by quoting both buy and sell prices in futures contracts, hoping to make a profit 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.

CME Group, which clocks in a daily trading volume of around nine million contracts, consists of the Chicago Mercantile Exchange, Chicago Board of Trade (CBOT), New York Mercantile Exchange (NYMEX) and and COMEX. It is the world's largest derivatives exchange for grains, livestock, oilseeds, dairy and timber.

Last year, CME Group bought a 25 per cent stake in Bursa Malaysia's derivatives unit and said it planned to develop a US dollar-based FCPO using settlement prices of ringgit contracts for trading on one of CME's platforms.

The CME Group and Bursa Malaysia tie-up will also see the listing of all existing and future Bursa Malaysia Derivatives products like FCPO, FUPO and FKLI on CME Globex in the second half of this year, said Bursa Malaysia Bhd chief executive Datuk Yusli Mohamed Yusoff.

Palm oil may hit RM3,300 per tonne

The price of palm oil may rise to as high as RM3,300 per tonne in the second half of the year, as the global supply of vegetable oils struggle to meet burgeoning consumer demand, industry experts predict.

    "Vegetable oils supply is under pressure. For the first time in history, Malaysia's palm oil production will fall for two years in a row, and this year it is likely to be 17.2 million tonnes.

My reasons are already well-known - the prevailing El Nino (weather conditions), the government's ongoing replanting scheme and most biological cycle of palm trees," said India's Godrej Group director Dorab Mistry.
The El Nino can bring global weather chaos such as droughts and floods, damaging agriculture crops.

"Post-July, I'ld expect palm futures to scale new heights in the range of RM2,800 to RM3,200 per tonne in order to ration demand," he said.

Mistry also said that a strong US dollar in the next few months acts as a calming influence on commodities prices. However, he expects the greenback to weaken around July, prompting commodities to move ahead strongly.
"It looks as though the El Nino 'induced damage' to the palm oil output will be felt in the second half of this year, just as the biological cycle turns from high to low," he said. "From March to July, I would expect palm oil futures to trade in the range of RM2,600 to RM2,800 per tonne," he added.

Apart from Mistry, analysts Anne Frick of Prudential Bache Commodities LLC and Nagaraj Meda of Transgraph Consulting Pvt Ltd also presented bullish price forecast to some 1,800 vegetable oil traders at the Palm and Lauric Oils Conference 2010 in Kuala Lumpur yesterday.

MPOB should study wider use of methane

THE Malaysian Palm Oil Board (MPOB) should study the feasibility of using renewable gas for public transport like taxis and for more heavy-duty industrial use, a senior industry executive said.

Malaysian Palm Oil Association chief executive Datuk Mamat Salleh said the palm oil industry should not limit itself to just converting methane gas into electricity for sale to Tenaga Nasional Bhd (TNB).

"There should be more options. The MPOB (Malaysia Palm Oil Board) should also explore the possibility of compressing methane into cooking gas tanks for household use in remote areas. And if our scientists and engineers are able to come up with ways to extract a significant amount of purified methane for sale to the national gas pipeline, why not?" he said in an interview with Business Times.

Some palm oil mills in the country already have biogas plants, which trap captured methane gas from palm oil mill effluents to reduce air pollution. Methane is a more harmful greenhouse gas than carbon dioxide (CO2). While a small number of mills use the captured methane to produce electricity for their own use, or for sale to TNB, most biogas plants simply burn the methane, turning it into CO2.

"We should be adding value. The current practice of methane-flaring is akin to letting money go up in smoke. That's a waste of a highly efficient fuel," Mamat said.

Currently, Peninsular Malaysia faces a gas shortage and some industry players have floated the idea of supplying methane to the national gas pipeline. However, it is unclear if the idea is viable as it will probably require a substantial amount of methane gas for it to work.

"Methane captured for sale as fuel is good for the environment, and palm oil millers get to earn some money in supplying energy, be it renewable natural gas or electricity," Mamat said.

Yummy! Peking Duck

I've just returned from Beijing covering Singapore's Raffles Education Corp and Malaysian government's investment in China's tertiary education industry. The weather was very cold and dry. During the 3-day assignment there, I and other journalists (from Malaysia and Singapore) got to taste the famed Peking Duck. Yay!

Here's a tip! You can make good wraps (popiah skin) using palm shortening because it has less water content than margarine.

Ingredients for wraps
1 cup flour
2oz palm shortening
16oz warm water

Ingredients for roast duck
1 duck
3 teaspoon salt
a pinch of white pepper
1 1/2 teaspoons hoisin sauce
a pinch of five-spice powder
2 teaspoon honey
1 teaspoon vinegar
boiling water
shredded spring onions

To make the wraps: Mix the flour, palm shortening, and warm water together and knead it into dough. Roll it out to 2mm thick, cut out the wraps in circles like popiah skin. Then slightly pan-fry both sides.

To make the roast duck: Rinse and hang the duck to dry for 15 minutes. Put the salt, pepper, hoisin sauce, and five-spice powder inside the duck, to marinate it. Then, put the duck into the refrigerator for 6 hours.

Hold the duck upright and pour the hot boiling water onto its body until it is puffed. Prepare honey and vinegar paste. Paint a thin layer of the honey mixture all over the duck. Hang the duck for 5 hours in a dry area while using a fan to help blowdry it. Pre-heat the oven to 200°C oven and roast the duck for 40 minutes.

Let meat rest for 15 minutes after cooking. Remove the skin and meat from the duck in thin strips and slices. Spread hoisin sauce on a wrap. Put the duck skin and meat slices onto the wrap, top it with shredded spring onions. Fold and roll the wrap popiah style.

While I was in Beijing, I managed to persuade another journalist to accompany me to a local shopping mall. Birdy Law, the deputy business editor of Nanyang Siang Pau newspaper, helped capture these photos.

As you can see, middle class consumers in Beijing mostly use soybean (which is flavoured with peanut and walnut oil), sunflower, rapeseed (which is known as camelia oil there) and the very expensive olive oil.

There was no palm cooking oil on the grocery shelves, not even the official Beijing 2008 Olympics cooking oil brandnamed "Arawana" by Kerry Oils & Grains (China) Ltd, a unit of the Wilmar Group. Maybe it is because it is still winter over here in Beijing and ordinary palm cooking oil becomes jelly-like and cloudy.

Hmmm ..... this could be a business opportunity for "Novelin" palm cooking oil that remains liquid and clear during winter. Novelin is an invention by the Malaysian Palm Oil Board team of scientists, headed by Dr Siew Wai Lin.

The Novelin formulation and brandname is licensed to the private sector, one of them being Green Ocean Corp Bhd, listed on the stock exchange Bursa Malaysia in Kuala Lumpur. Green Ocean Corp managing director Lee Byoung Jin, better known among friends and associates as McKinLee, is an enterprising man. Perhaps by next year, shareholders of Green Ocean Corp may hear news of Novelin hitting the supermarket shelves in the northern cities of China ;-)

Here's a closer look at the "Mighty" olive+sunflower cooking oil, popular in Beijing.

Malaysia to explore renewable gas potential

The Energy, Green Technology and Water Ministry will explore the possibility of Peninsular Malaysia using renewable natural gas from biogas plants installed at palm oil mills.

On one hand, Peninsular Malaysia faces gas shortage and on the other, palm oil mills are encouraged to capture methane gas from palm oil mill effluent to reduce air pollution.

"It is an interesting suggestion that the pipelines that carry gas to facilities using the fuel be also used for methane gas generated from the palm oil industry," said Energy, Green Technology and Water Minister Datuk Seri Peter Chin Fah Kui.

"I will certainly explore this possibility," the minister replied via his blog at to questions recently posted by Business Times.

According to the Malaysian Palm Oil Board, there are 417 palm oil mills in the country, of which 246 are in Peninsular Malaysia.

Tenaga Nasional Bhd (TNB), a major user of natural gas in the generation of power is receptive to the concept but stressed that it is important for the government to assess whether it is economically viable to generate the amount of gas needed by consumers.

"It has potential, Malaysia can consider this option but it must be economically viable. If palm oil millers can generate the kind of volume we need at affordable rates, it would be good for natural gas users like us," TNB president and chief executive officer Datuk Che Khalib Mohd Noh said in an interview when met in Kuala Lumpur yesterday.

Currently, the anaerobic digester tanks that turn agriculture waste like palm oil mill effluent and animal manure into renewable natural gas are first generation products. They now take about a month to generate a reasonable amount of gas. Scientists and engineers are working on a second generation equipment that could do this 10 times faster, or in just three days.

Is Malaysia ready for renewable natural gas?

PART of the answer to Peninsular Malaysia's gas shortage may lie in oil palm trees, cows and chicken. Oil palm estates and livestock farms could generate renewable natural gas that may be used for local and foreign industries.

However, this hinges on whether there is enough renewable gas and also the price that the government will pay for renewable gas, industry executives said.

Industries in the peninsula have relied on natural gas in offshore Terengganu since the 1980s for direct fuel or indirectly as most power plants run on gas. However, the gas is running out. Malaysian Industrial Development Authority (MIDA) director-general Datuk Jalilah Baba reportedly said from 2012 onwards, the government will look to import gas for domestic use.

In anticipation of less gas, the government has also given out licences to build more coal-fired power plants several years ago. National utility Tenaga Nasional Bhd (TNB) is also keen on more renewable energy sources like hydro-electric plants and small plants that run on oil palm waste or biomass.

But the problem with hydro is that sizeable plants could only be built in Sarawak due to its large rivers while biomass plants are too small to make much of a difference. Currently, biomass and biogas plants are built by plantation companies to produce electricity for their own use and also to sell to TNB.

But another idea is to sell the gas to Gas Malaysia Sdn Bhd, the national gas pipeline operator.

Palm oil mills are encouraged to capture methane gas from palm oil mill effluent to reduce air pollution.

"After the methane quality is verified, it can be compressed to the right pressure before it is injected into the national gas pipeline. But we must first ascertain whether the volume of methane from biogas plants is significant enough for sale to the gas grid," said Lipochem Sdn Bhd managing director Koh Pak Meng. Lipochem is a process engineering company.

"Alternatively, the purified methane can be sold as compressed natural gas for industrial users like oleochemical producers or as transport fuel for taxis and express buses," he added. With this in mind, Lipochem is currently collaborating with Green Ocean Corp Bhd to develop cost-effective ways to turn agriculture waste into much-needed natural gas and electricity.

According to the Malaysian Palm Oil Board, there are 417 palm oil mills in the country, of which 246 are in Peninsular Malaysia and another 117 in Sabah.

Another industry player, Bell Corp Sdn Bhd chief executive Datin Liana Low said one more crucial aspect to the idea is how much Gas Malaysia will pay for renewable gas. "Right now, TNB has feed-in tariffs for 'green' electricity. Gas Malaysia, however, does not have any feed-in mechanism for renewable natural gas."

"If the government were to discuss with Gas Malaysia to come up with a commercially viable feed-in tariff for 'green' gas, palm oil millers in Peninsular Malaysia can consider selling purified methane for injection into the country's gas pipeline," she said.

"Our rough estimate shows natural gas pipelines on a per kilometre basis cost just half as much to build as high tension power cables. Also, transmission loss via gas network is only a quarter to that of electricity via the power grid," she said.

Gas Malaysia only buys natural gas from Petroliam Nasional Bhd (Petronas) at RM15 per million metric british thermal units (mmBtu), while Petronas sells a fixed annual supply of natural gas to the manufacturing sector and the bulk, or about 60 per cent, goes to power plants. The manufacturing sector now uses some 15 per cent of natural gas in the national pipeline, following a recent additional allocation of 100 million standard cu ft per day (mmscfd).

TNB and independent producers such as MMC Corp, Genting and YTL Power pay RM10.72 per mmBtu. The manufacturing sector, however, pays much more. Companies using less than two mmscfd pay RM24.54 per mmBtu of gas. Those using more pay RM32.56 per mmBtu.

Low noted that natural gas users in the country will eventually pay an international price of about US$12 (RM41) per mmBtu. "A commercially viable feed-in rate for renewable natural gas producers would be around US$6 (RM21) per mmBtu," she said.

Bell Corp operates six mills in Peninsular Malaysia, one in Sabah and two in Indonesia. It has installed a biogas plant to its Johor mill to extract methane from mill sludge. It now generates two megawatts of electricity for sale to TNB.