Archive for February 2011

Biodiesel B5 to be introduced in stages

Please note that the amount of palm oil processed into biodiesel for fuel is less than 1% of total production of 17 million tonnes produced in Malaysia last year.

About 90 per cent of palm oil supply has always been and continues to be produced to make cooking oil, margarine, and vanaspati (vegetable ghee). The remaining 9 per cent is processed into everyday soap, moisturiser, shampoo and biodegradable laundry detergent.

THE government remains committed to implementing the biodiesel B5 mandate in four months although crude palm oil is trading at high prices.

It has allocated RM200 million to put up blending facilities nationwide to blend diesel with palm methyl ester from June 2011 to kick-start sales of the green fuel, after a five-year delay.

Yesterday, the third-month crude palm oil futures on the Malaysian Derivatives Exchange rose RM58 to close at RM3,515 per tonne.

Malaysia has been struggling to implement a mandate to push the blended fuel and support the palm oil industry that was first introduced in 2007 as more taxpayers' money is needed to subsidise biofuel blends to match diesel prices at the pumps.

Plantation Industries and Commodities Ministry undersecretary M. Nagarajan confirmed 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, Negri Sembilan and Malacca.

"The blending facilities capital expenditure for the central region amounts to RM49.6 million of the total RM200 million," Nagarajan said. Among depots in the central region that is being fitted with blending facilities are Klang Valley Distribution Terminal, Tangga Batu, Port Dickson, Westports and Northport.

Nagarajan was speaking at the "Palm Oil Economic Review and Outlook Seminar 2011" organised by the Malaysian Palm Oil Board in Kuala Lumpur yesterday. He said there will be an allocation for B5 subsidy via the automatic price mechanism. 

When asked for an estimate, Nagarajan told Business Times that "at current world oil price, we're looking at subsidies ranging from 5 to 7 sen per litre". 

He also said the Finance Ministry had agreed in principle to lift the 10 per cent tax on the sale of biodiesel in the country. "The effective gazette date on the tax exemption on biodiesel sales will be announced later," Nagarajan said.

While some people do not agree that taxpayers' money be used to facilitate the implementation of the B5 mandate, there are others who view this move as a step towards ensuring energy security for the country.

Tropical countries like Malaysia and Indonesia are able to produce biodiesel at a fraction of the cost that in temperate countries like in Europe and North America by virtue of abundant sunlight and rainfall. This means grass, plants and trees including oil crops, are able to grow faster and in higher density in the tropics than in North America or Europe. 

Therefore, it makes sense for Malaysia, a major palm oil producer, to set the example of using palm biodiesel domestically as it seeks to market and export the green fuel to energy-hungry countries.

Rising food prices eating into economies

This is written by my boss Mustapha Kamil, the executive editor of Business Times.

Perhaps the world has been focusing too much on the rise and fall of stock and property prices around the globe and the erratic potential for accumulation of wealth that comes with the wild swings lately, that governments seem to be missing another potentially devastating issue, the increasingly limited access to one of human's most basic of necessities -- food.

Analyses and reports coming from around the globe paint 2011 as possibly a year when the world starts to live dangerously in as far as food would be concerned.

In a nutshell, the analyses point out grim prospects for the world if nothing is being done now. It seems all around the globe food is either falling increasingly short in supply or be-yond reach of many because of spiralling prices. It seems a lot more people will go to bed hungry from this year on and a lot more will die either of effects of malnutrition or simply of hunger.

Projections made based on current data don't seem promising at all. On the one hand, the supply situation is not expected to improve anytime soon and on the other, the number of mouths to feed around the world increases sharply by the day. It is projected that the world population will reach some 9 billion by 2050, from about 6.9 billion now and from the presently mounting challenges faced by food producers, it is very likely that starvation would become more widespread.

Even with a population of about 6.9 billion now, the imbalance between supply and demand is already driving food prices sky high in many parts of the world. The picture is even gloomier if the currently erratic global weather pattern and natural disasters are taken into account.

The United Nations in a recent report predicted a global new record high for food early this year and that prices will increase 30 per cent more by the end of the year. According to the US Department of Agriculture, the country's corn reserves will drop to a 15-year low by the end of 2011 but an anticipated severe drought in China will make it necessary for the country to import nine times more corn that what the US initially expects it would.

At the same time, Russia which is a large producer of wheat has begun to import the commodity as high temperatures experienced in the summer of 2010 had devastated much of the crop.

In short, there will be a mad scramble for food, a phenomena that will surely drive prices even higher.

The question is, who will feed the poorer nations? Statistics show that someone somewhere will starve to death every 3.6 seconds now and 75 per cent of those are children under the age of five.

The world is really struggling to feed itself and ultimately it will have to face the sorry prospect of having to decide who gets to eat and who shall starve.

Starvation, too, could lead to a host of other challenges. There was a direct relation between the recent riots that brought the Tunisian government down and the high prices and short supply of food in the country.

In Egypt, spiralling cost of living largely brought about by imbalances between what the Egyptians take home and what they have had to pay for basic necessities including food was one of the factors that drove them to the wall and eventually revolted against their government, despite after living 31 years in fear under former President Hosni Mubarak's iron-fisted rule.

A hungry population is also likely to become a desperate lot. Governments of the world must take notice of this threat for it could have a far more devastating impact than any property bubble burst or stock market collapse.

Best ever plantation commodity exports

MALAYSIA raked in RM113.3 billion from plantation commodity exports last year, the best ever performance, as global demand for vegetable oils, rubber and cocoa butter surpassed supply.

To a certain extent, the higher demand was also fuelled by the weakening of the US dollar against the ringgit.

"Last year's achievement was 24 per cent higher than 2009's RM91.16 billion. It also surpassed the previous record of RM112.43 billion in 2008," Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said. "It augurs well for our economy," he added.

Malaysia's plantation-based commodities comprise palm oil, rubber, timber, cocoa, tobacco and pepper. In the last decade, the commodities sector was the nation's second largest contributor after manufacturing. Since then, the exports had also tripled in value.

The US dollar forms the basis for major index of commodity prices. Hence, Malaysia's plantation commodity exports like palm oil, rubber, timber, cocoa and pepper are quoted in the greenback. Last year, the US dollar weakened by 11 per cent against the ringgit from RM3.45 to RM3.06.

Dompok said palm oil earnings of RM62.85 billion had made up the bulk of the country's plantation commodities exports last year. High palm oil prices have contributed to high exports. Last year, palm oil prices averaged at around RM2,700 a tonne, slightly less than RM2,800 a tonne in 2008.

The minister was speaking to reporters in Putrajaya yesterday after witnessing the signing of agreements between Malaysian Rubber Board and Felda Rubber Industries Sdn Bhd and Mardec Bhd on the commercialisation of renewable industrial rubber called Ekoprena and Pureprena.

He noted that last year's most improved performer was the rubber sector. It jumped 49 per cent to RM24.67 billion from 2009's RM16.59 billion, thanks to soaring natural rubber prices.

As crude oil prices soar above US$100 (RM305) a barrel, Dompok anticipates slightly more output of natural rubber because tyremakers use both synthetic and natural rubber. Current high rubber prices will motivate smallholders to tap their rubber trees more frequently.

"Rubber tappers are likely to harvest close to a million tonnes this year. We can't go too far from that level because we only have about one million hectares of rubber plantations. They are the same old trees," he said.

KL Kepong profit jumps 26pc in first quarter

KUALA Lumpur Kepong Bhd's (KLK) first quarter profit ended December 2010 jumped 26 per cent to RM304.19 million from a year ago, thanks to stronger contribution from its plantation business. Its retailing arm, Crabtree & Evelyn, which had undergone restructuring, had also brought in a slightly higher profit of RM53.6 million.

Group revenue rose to RM2.42 billion from RM1.75 billion before.

When met in Ipoh yesterday, KLK chief executive officer Tan Sri Lee Oi Hian said the better results came despite the adoption of new accounting standards dubbed FRS 139. The standards have resulted in a fair value loss of RM95.4 million on derivative contracts like commodity futures and foreign exchange contracts.

For the quarter, KLK's plantations profit climbed 34 per cent to RM314.6 million, underpinned by higher average palm oil price of RM2,678 per tonne, palm kernel oil of RM1,762 and rubber sold at RM11.78 per kg.

Asked on outlook for the year, Lee said he expects good results on prospects of continued buoyant commodity prices. His optimism is underpinned by the current global demand for vegetable oils and natural rubber surpassing supply.

"For the current year, fresh fruit bunches production is likely to rise to high single-digit percentage as more trees reach their prime fruit bearing age," he told reporters after the company's annual general meeting held in Perak.

Yesterday, the third month benchmark crude palm oil futures on the Malaysian Derivatives Exchange closed at RM3,514 per tonne.

High palm oil price benefits farmers, but it also results in expensive cooking oil. This has prompted the Indonesian government to raise export tax on crude palm oil, so that cooking oil supply in the republic would be guaranteed, mitigating fears of a shortfall. Back in November 2010, crude palm oil export tax was 10 per cent. As of February 2011, it has risen sharply to 25 per cent.

Asked on the impact of Indonesia's progressive crude palm oil export tax on KLK's plantation business there, Lee replied the tax structure hurts refiners' margin, but clearly favours biodiesel and oleochemical players. "We're considering downstream activities there. We may set up an oleochemical plant in the mid term."

Lee said the company has set aside capital expenditure of about RM500 million for its plantation business."It will mostly go to putting up new palm oil mills in Indonesia, building up the basic infrastructure in the estates, like roads and bridges. We'll upgrade a couple of mills in Malaysia and carry out new plantings of about 8,000ha in Indonesia," he said.

IOI sizzles in second quarter

IOI Corp Bhd's  second quarter profit surged 13 per cent compared to a year ago, thanks to stronger contribution from its plantation business.

IOI's net profit for the quarter to December 31 2010 was RM520.24 million. Group revenue rose to RM3.97 billion compared with RM3.06 billion before.

In its filing to the stock exchange yesterday, IOI said it expects satisfactory performance for the rest of the fiscal year ending June 2011 on prospects of strong palm oil and palm kernel prices and a resilient property market.

Yesterday, its share price rose 13 sen to RM5.71. IOI shareholders' optimism is buoyed by the uptrend in palm oil prices as the current global shortage of vegetable oils is set to keep prices at higher levels. 

So far this year, crude palm oil (CPO) futures on the Malaysian derivatives exchange are averaging at around RM3,700 a tonne. Yesterday, the third-month benchmark palm oil contract closed at RM3,745 per tonne. 

In its second quarter results, IOI's plantation operating profits rose 14 per cent to RM363.7 million from RM319.9 million a year ago. The rise in profits was mainly due to higher CPO and palm kernel prices. The group's average CPO price in the quarter was RM2,800 per tonne while palm kernel price was RM1,979 per tonne.

During the quarter, IOI gained RM61 million when it sold off a portion of its investment properties. Despite the higher profits achieved in refining activities, the resource-based manufacturing segment recorded lower profits mainly due to fair value losses on the adoption of FRS 139.

During the quarter, the total fair value losses on derivative contracts recognised was RM73 million. Prior to adoption of FRS 139, derivative financial instruments were not recognised in financial statements. With the adoption of FRS 139, derivative financial instruments are initially recognised at fair value on the date the derivative contract is entered into and are subsequently remeasured at fair value through profit or loss. The resulting gain or loss from the remeasurement is recognised in profit or loss.

More calls to lift export curb on oil palm seeds

This is written by my colleague Zaidi Isham Ismail.

Another industry specialist has supported the call to lift the ruling restricting export of germinated oil palm seeds that hinders Malaysia's prospect to be the world's largest supplier of the commodity.

Kulim (Malaysia) Bhd director Datuk Haron Siraj said Malaysia has to export the planting material because the country has very limited land available for oil palm cultivation namely in Sarawak.

"The government should review the restriction and allow the export of oil palm seeds without hassle or any other tight conditions due to limited land and surplus oil palm seeds production," Haron told Business Times in an interview.

The government, since the 1970s, restricts the export of oil palm seeds to ensure enough supply for local farmers as well as protect the seeds' intellectual property rights from being copied by other oil palm producers.

Malaysia, however, does supply oil palm seeds to Malaysian companies overseas as well as to Honduras, Colombia, Sierra Leone, Thailand and Indonesia on a government-to-government basis.

Felda Agricultural Services Sdn Bhd executive director and chief executive officer S. Palaniappan said, earlier this month, the situation had now changed. Malaysia's oil palm sector now produces more than enough oil palm seeds to cater for domestic use as well as the export market. Malaysia, in total, produces 80 million oil palm seeds, of which 50 million are supplied to local planters, while the remaining 30 million can be sold to other customers local and abroad.

Haron said the oil palm seeds only has a shelf life of two years and are wasted when crude palm oil prices are high as local planters delay replanting activities to reap the good price. "The issue of intellectual property rights should also not arise because the electrical and electronics industry for example sell the latest and the best products in the market. We should also do the same with the oil palm industry - sell the latest oil palm planting materials," said Haron, who is former secretary general to the then Primary Industries Ministry (now Plantation Industries and Commodities Ministry).

Haron, who also sits on the Malaysian Palm Oil Board programme advisory committee, said demand in African countries near the equator line such as Nigeria (oil palm country of origin) is enormous as they want to rehabilitate their own oil palm industry. "We can help them with the oil palm planting materials and charge them royalty payments."

Another idea is to export consultancy services to countries such as Colombia to develop their oil palm industries or develop nurseries in Africa rather than Malaysian companies go abroad to open plantations overseas.

"I know some plantation companies are wary to go overseas due to numerous issues such as soil conditions but don't get involved in land tenure. What we can do is to operate overseas on a build, operate and transfer basis such as in the construction sector. Companies can export the oil palm planting materials, offer consultancy services, break even, transfer operations and then leave after two cycles of oil palm planting (each cycle 20-30 years)," Haron said.

He added that companies can also set up mills when the planted area exceed 30,000ha.

Oil palm seeds can be a significant income earner for the country as it can fetch a higher price in the overseas market, at almost RM3 per seed compared to almost RM2 per seed in Malaysia.

Palaniappan had estimated that Africa and Indonesia alone have demand for 50 million and 130 million oil palm seeds a year respectively as everybody now wants to cash in on the crop.

Call for removal of oil palm seed export ban

This ia written by my colleague Zaidi Isham Ismail.

Malaysia can be the the world's largest supplier of germinated oil palm seeds, provided that the government drops its existing gazette that bans the export of the commodity.

The government, since the 1970s, prohibits the export of oil palm seeds to ensure enough supply for local farmers as well as protect the seeds' intellectual property rights from being copied by other oil palm producers. Malaysia, however, does supply oil palm seeds to Malaysian companies overseas as well as to Honduras, Colombia, Sierra Leone, Thailand and Indonesia on a government-to-government basis.

Felda Agricultural Services Sdn Bhd executive director and chief executive officer S. Palaniappan said the situation has now changed where the country's oil palm sector produces more than enough oil palm seeds to cater for domestic use as well as the export market.

"Malaysia, in total, produce 80 million oil palm seeds, of which 50 million are supplied to local planters while the remaining 30 million can be sold to other customers.

"We have received a lot of enquiries from overseas customers and hope that the government will lift this gazette," Palaniappan told Business Times at Felda's headquarters in Kuala Lumpur recently.

He added that the oil palm seeds can be a significant income earner for the country as it can fetch a higher price in the overseas market, at almost RM3 per seed compared to almost RM2 per seed in Malaysia. He estimates that Africa and Indonesia alone have demand for 50 million and 130 million oil palm seeds a year respectively as everybody now wants to cash in on the crop.

Felda Agricultural Services is the technical and advisory arm of the Federal Land Development Authority (Felda), providing the plantation owner and land scheme manager oil palm-related advice, research and development findings, fertilisers, planting materials and seeds, products and consultancy services.

Felda's oil palm seed under the brand name Yangambi (an African word) is 100 per cent made at Felda and is the country's top-selling oil palm seed among many plantation companies.

Palaniappan said Felda Agricultural Services is going all out to maintain its grip as the country's top brand in oil palm planting materials and seed production. "Over a period of 40 years in the seed production business, Felda is proud that its oil palm seed is now the top selling and a well-known brand with a 27 per cent market share," he added.

Felda Agricultural Services produced 23 million oil palm seeds in 2010 and is expected to produce 27 million seeds in 2011. He said Malaysia produced about 86 million oil palm seeds in 2008, of which 23 million seeds were supplied by Felda Agricultural Services and the country's second largest oil palm seed producer Sime Darby Bhd.

The Yangambi brand continues to lead as the country's top- selling brand for oil palm seeds and was last month awarded the Brand Laureate SMEs chapter award for the best brand specialty award in brand innovation (Felda Yangambi).

"About 25 per cent of the oil palm planting materials are for Felda's internal use, while the remaining 75 per cent are sold to our 100 clients, including smallholders and main board companies," Palaniappan said.

They include the Rubber Industry Smallholders Development Authority, Federal Land Consolidation and Rehabilitation Authority (Felcra), Ta Ann Holdings, Rimbunan Hijau Group, Genting Plantations, Lembaga Tabung Haji's TH Plantations and others.

"Our oil palm seeds have potential to produce about eight tonnes of crude palm oil per hectare per year, double the national average. Our own estates at Felda Agricultural Services produced in 2008 an average yield of 26.6 tonnes of fresh fruit bunches per hectare per year compared with the national average of 20 tonnes per hectare per year," he added.

Palaniappan said Felda Agricultural Services is among the country's top two players in producing oil palm clones, targeting to produce one million by 2010 and later on go for full commercial production. It has one of the world's largest oil palm breeding programmes since 1968, carrying out its tests and trial activities at its 14 stations located across 12,500ha of its oil palm land nationwide.

Malaysia, which is the world's second largest palm oil producer after Indonesia, needs 60 million to 80 million oil palm seeds a year.

Felda Agricultural Services is 23.1 per cent owned by Koperasi Permodalan Felda Bhd, which in turn is held by settlers and Felda staff. The remaining 76.9 per cent is owned by Felda Holdings Bhd, which in turn is a wholly-owned subsidiary of Felda Global Ventures, the commercial arm of Felda.

Felda is possibly the world's largest plantation owner and manager owning over 800,000ha of rubber and oil palm estates, of which 730,880ha are oil palm land. There are about 112,000 settler families.

Out of the 800,000ha, some 500,000ha in 2008 have received Felda Agricultural Services agronomic recommendation and other consultancy services.  In 2009, Felda Agricultural Services made a pre-tax profit of RM116 million. It spends RM40 million a year on research and development activities.