IOI to ride on China's palm oil demand

China is one of IOI Corp Bhd's top five palm oil markets and executive chairman Tan Sri Lee Shin Cheng sees stronger demand in the years ahead.

China, with 1.3 billion people, is the largest vegetable oil consumer in the world. Last year, China imported 6.6 million tonnes of palm oil.

"Naturally, we see very good potential in increasing our sales volume further," Lee said in an interview with Business Times.

"We work closely with a few parties in China," Lee said, stopping short of naming clients.

However, it is understood that one of IOI Group's main clients is China's largest food and oil trader, Cofco Ltd. Since 1994, Cofco has been consecutively listed among the Fortune Global Top 500 Enterprises. It is also one of 53 state-owned backbone enterprises under the direct administration of the Chinese central government.

Lee also expects the US dollar to weaken further in line with heightened prospects of the US entering a second recession. According to Bank Negara Malaysia's website, US$1 is at RM3.14 currently, from RM3.45 six months ago. This means the US dollar has weakened by 9 per cent against the ringgit.

"The latest unemployment figures in the US are still disappointing. I foresee the ringgit strengthening further against the US dollar," he said. "Just last week, economic data revealed deep concerns about the health of the US economy," Lee said, drawing attention to Federal Reserve (Fed) chairman Ben Bernanke's warning last Friday that the US economic outlook was inherently uncertain.

It was reported that the US economy grew at just 1.6 per cent in April, May, and June - not the 2.4 per cent initially projected. Bernanke suggested that the Fed was ready to pump more money into the economy through another large-scale buying of securities if conditions were to deteriorate significantly.

Despite the US economy facing a sluggish outlook, palm oil consumption continues to grow. Palm oil is seen as a healthy substitute to partially hydrogenated soft oils that contain artery-clogging trans fat. "The US imports about a million tonnes of palm oil annually. This market has been growing fast because of the trans fat issue. We're increasing the capacity at our Chicago facility to gain market share there," Lee said.

As at June 30 2010, IOI Corp's net cash position was RM3.9 billion. Asked if the group plans to invest in bulking facilities in the US, he replied: "Not at the moment. But in the longer term, we may want our own bulking installation at a strategically located port to improve logistics efficiency."

One Response to IOI to ride on China's palm oil demand

  1. China has been a net importer of agricultural products since 2004, and the gap is likely to grow wider in coming years as food consumption soars.

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