Archive for September 2011

Global economic gloom to weigh on palm oil

MUMBAI: A brewing economic crisis in the developed world will weigh on palm oil prices that have lost 21 per cent this year on high output, although the market could rally again on Asian demand and erratic weather, industry analysts said.

Investor concerns that eurozone and US debt crisis may develop into a full-blown recession and slow commodity demand will be a key driver for palm oil this year, analysts at an industry meeting here said.

"The delicate economic situation in the developed world leads me to believe there will be several short periods between now and the middle of 2012 when markets will be extremely volatile," Dorab Mistry, a leading analyst, said yesterday.

"Given all that, I do not believe markets have bottomed out yet," said Mistry, who is also the head of vegetable oil trading with India's Godrej at the end of the three-day Globoil conference.

Mistry said palm oil will fall from current RM2,990 levels to trade in a range of RM2,800 to RM3,100 until mid-November, due partly to the hot US weather market concerns on soya coming to an end.

His views were echoed by Thomas Mielke, head of Hamburg-based research house Oil World, who said palm oil futures could fall in the next three months to RM2,850 on the brewing financial crisis and strong output.

Palm oil production in Indonesia and Malaysia, which accounts for 90 per cent of the world's supply, has been strong after two years of erratic weather and higher maturing acreage.

But a possible resurgence in the La Nina weather phenomenon could hurt output and drive prices to RM4,000 levels by the second quarter of next year, Mistry said.

La Nina triggers heavy rains that can stall harvesting rounds in top producers Indonesia and Malaysia. Six months down the line, output usually gets cut due to poor pollination affecting palm fruit development.

Mielke pointed to vegetable oil prices rising again in the first half of next year as bio fuel mandates in Argentina, Brazil and the US swallow up more vegetable oil supplies at a time when palm oil output slows from a bumper 2011.

"We have to understand soyabean oil supplies are going to trim in 2012, 2013 due to ambitious bio diesel programmes," he said, adding about 22 million tonnes of vegetable oils globally were used for biofuel.

Analysts and traders are counting on demand from developing economies led by India and China - the world largest edible oil buyers with their billion plus populations to support prices of palm oil.

"Demand is rising in India and consumption growth would be there in coming years," said Dinesh Shahra, managing director, Ruchi Soya Industries , India's biggest edible oil importer.

"Disposable income is rising. We need to import more edible oils in 2011/12 despite having good domestic oilseeds crop," he added.

At the conference, industry forecasts of Indian edible oil imports in the new marketing year from Nov. 2011 ranged between 8.5 million and 9.2 million tonnes, after orders fell for the first time in five years in the current year.

India could face a shortage in imported edible oils as its top supplier Indonesia has slashed its export taxes in favour of refined palm oils but does not have the refining capacity to meet India's monthly demand of 600,000 tonnes. But the South Asian nation has started buying more refined palm oils, raising fears domestic processors will lose a large chunk of their business.

Food Minister K.V. Thomas, who has been the most vocal about the tax move, offered no cues when he attended the conference as whether the government will raise the import tariff values for refined palm oils.

"I suppose these things take time," said an Indian trader who took part in the conference. - Reuters

Palm oil exports tipped to touch record RM80b

Kuala Lumpur: Malaysia's palm oil exports forecast for this year is raised again to RM80 billion, which will be a new record, thanks to higher average palm oil prices and improved global demand.

The current record was in 2008 when palm oil shipment topped RM65 billion as the crude palm oil (CPO) price averaged RM2,800 per tonne then.

"Global demand for palm oil continues to be strong. India and China have been buying more palm oil. Africa has also placed more orders for Malaysian palm oil," said Malaysian Palm Oil Council chairman Datuk Lee Yeow Chor.

Stronger commodity exports have helped the country offset weaker shipments of electronics, traditionally the major contributor to overall exports.

According to the Malaysian Palm Oil Board (MPOB), the country has achieved RM52.46 billion in palm oil exports in the first eight months of this year.

Two months ago, Plantation Industry and Commodities Minister Tan Sri Bernard Dompok forecast that this year's palm oil exports could top RM70 billion.

In the first eight months of this year, palm oil futures prices were averaging at RM3,200 per tonne, higher than last year's RM2,700 per tonne. "We should do better than last year's RM60 billion as crude palm oil prices are still relatively high," Lee told reporters after speaking at Forbes Global CEO Conference on Tuesday.

"Although we've milled 12.01 million tonnes of crude palm oil in the first eight months, 8 per cent more than the same period last year, prices are averaging at around RM3,200 per tonne. Also, since palm oil is trading at a significant discount of more than US$200 per tonne (RM616) to soya oil, demand for palm oil should pick up in the months to come," he said.

Asked if a new target of RM80 billion is achievable, Lee replied, "based on all the factors outlined, I would say yes".

He reiterated MPOB's 18.3 million tonnes CPO output forecast for this year. This is good news for palm oil consuming countries worldwide because Malaysia, which supplies almost half of the palm oil, has experienced falling output in the last two years.

In presenting his view on "fuel and sustenance for a green economy" at the conference, Lee explained how Malaysia has more than 400 mills that can convert waste to steam and electricity. The government, in reducing fossil fuel dependence, has called for more production of renewable energy and provided incentives in the form of feed-in tariffs that will kick off in December 2011.

"Palm oil mills that are fuelled by biomass and biogas are already co-generating steam and power. Some of us are even supplying this green energy to the national grid to leverage on the feed-in tariffs," he said.

When asked on green products the palm oil sector makes, Lee highlighted that the oleochemical industry produces biodegradable detergent and plastics. "The key ingredients that our oleochemical industry supply to detergent and surfactants manufacturers are biodegradable. It does not harm living organisms in our rivers and lakes," he said.

Lee then cited Oil World's data, showing how the oil palm tree is the world's most efficient oil crop because one can harvest five tonnes of oil per hectare. This is 10 times more productive than soya oil planted in the US and five times more than rapeseed oil, Europe's main oil crop.

A'lian gov against palm oil labeling

This is written by my colleague Zaidi Ismail.

PUTRAJAYA: The Australian government does not support a Bill being proposed by some of its lawmakers to label palm oil on food ingredients.

In a statement yesterday, Australia's Trade Minister Dr Craig Emerson said the Bill is anti-trade in nature and could jeopardise trade relations between Australia, Malaysia and Indonesia. Currently, Indonesia and Malaysia are the world's top two palm oil producers, respectively.

"This bill will also burden food producers which have to fork out A$150 million (RM471 million) a year to label the food items as well as cause a trade war between the three countries," said Emerson.

Australia's opposition parties are trying to pass a law called "Food Standards Amendment (Truth in Labelling - Palm Oil) Bill 2011. It is now at the Australian parliament at the House of Representatives before it may be passed as late as April 2012. The law requires food manufactures to prominently highlight palm oil in a negative connotation on the food label, if it contains palm oil.

Malaysia and Indonesia are enraged because the law is discriminatory, in that it does not require other edible oils such as rapeseed, soyabean and other oils to do the same. This way, non-governmental organisations can single out food companies that use palm oil and campaign against them by saying that planting oil palms destroy the habitat of orang utans.

Meanwhile, Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said Malaysia is still continuing the crusade by organising several more oil palm seminars in Australian cities over the next few months. 

"This Bill is discriminatory and if passed as law, we will take it up at the next option which is to bring it up at the World Trade Organisation level," he said.

On another note, Dompok said the B5 biodiesel (a blend of 95 per cent diesel, 5 per cent palm methyl esther) will be available at all petrol stations nationwide by early next year.

Launched in stages since June this year, biodiesel is now only available in the central region and used mainly by government vehicles. "Oil companies are making preparations right now to set up the facilities and I don't think it will take them a year to set up the infrastructure."

Yay! Yay! Sang Har Meen

This one, I like very much. Check it out at Fatty Crabs Restaurant, Taman Seputeh in Kuala Lumpur. Alternatively, you could try out the recipe below.

SANG HAR MEEN (or Freshwater Prawns And Fried Wantan Noodles)

6 extra large freshwater prawns
3 pieces fresh egg wantan noodles
100g Chinese white cabbage (wong nga pak), sliced
2 stalks spring onions, cut into 4cm lengths

2-3 tbsp palm cooking oil
1 tsp sesame oil
1 tsp chopped garlic
1 tbsp finely sliced young ginger
1¾-2 tbsp cooking wine
400ml water or stock

Seasoning (combine):
1½ tbsp oyster sauce
2 tbsp chicken stock
1/8 tsp salt
1/4 tsp sugar
1/8 tsp pepper

Thickening (combine):
1½ tbsp corn flour
2 tsp water
1 egg, beaten lightly

1. Cut the freshwater prawns into halves. Sprinkle lightly with a little salt and pepper. Par-boil the prawns in boiling water until they turn red and are cooked. Dish out and set aside.

2. Loosen the wantan noodles and place on a steaming tray and steam over rapid boiling water for 2 minutes. Remove and cool. Loosen the noodles and deep-fry in batches in hot oil for 20 seconds until crispy and golden. Remove with a wire-mesh ladle and place on a serving dish. Arrange the prawns on top of the noodles.

3. Heat palm cooking oil and sesame oil in a wok, fry garlic until lightly golden then add ginger. Add in the cooking wine and fry the garlic and ginger until fragrant. Add the Chinese cabbage, water and seasoning and bring to a simmering boil for 4-5 minutes.

4. Thicken the sauce then lower the flame and stir in the egg. Pour the sauce over the noodles and serve immediately.

Serves 3.

KL Kepong to relocate S'pore plant to Selangor

This is written by my colleague Presenna Nambiar.

KUALA LUMPUR: Kuala Lumpur Kepong Bhd (KLK) will relocate its tocotrienol (Vitamin E) extraction plant in Singapore to Selangor, as part of a RM706 million investment scheme to expand its oleochemical offerings.

It's wholly-owned Vitamin E extraction unit Davos Life Science Pte Ltd is currently operating froom Tuas South Street in Singapore. The plan is to relocate it to KLK's existing refinery in Pulau Indah, Selangor.

KLK yesterday announced four projects to beef up and diversify its oleochemical capacity. The first project is an integrated methyl ester sulphonate and fatty alcohol plant, key ingredients used in the making of toiletries, bio-degradable detergent and moisturiser. The second is a plant to produce specialty fatty ester while the third is to extract high grade tocotrienol isomers, used in the cosmetics and pharmaceutical industries. The fourth project is to develop a world-class research and development centre at its Shah Alam facility.

The RM706 million investments will be part-funded by a RM134 million grant accorded by the Malaysian Palm Oil Board. Overall, KLK will use internally generated funds to finance these expansion and innovations in the next two years.

"Typically we expect about 15 per cent returns on investment in a plant before we embark on a project like this," KLK chief executive officer Tan Sri Lee Oi Hian said at a press conference after the 7th Economic Transformation Programme update by Prime Minister Datuk Seri Najib Abdul Razak yesterday.

KLK is contributing to the development of the downstream sector of the palm oil industry under the Palm Oil and Rubber NKEA (National Key Economic Area) - Developing Oleo Derivatives. They are part of the eight new initiatives under the Economic Transformation Programme announced by the Prime Minister yesterday. 

Oil palm seeds to cost 30pc more

Sungai Buloh, SELANGOR: The price of oil palm seeds, now at RM1.85 each, will be raised by 30 per cent to RM2.35 starting January next year. Business Times also understands that the higher grade semi-clonal seeds will be priced 45 per cent more at RM2.70.

"Over the years, we have invested heavily in oil palm breeding. This has enabled us to improve the seeds for higher yields. Most of the major seed producers in the country have also made similar price increases for 2012. It has been RM1.85 per seed since 2007," said Applied Agricultural Resources Sdn Bhd's (AAR) director of research Dr Kee Khan Kiang.

AAR, which advises more than 350,000ha of oil palm and rubber estates in Malaysia and Indonesia, is an associate company of Boustead Holdings Bhd and Kuala Lumpur Kepong Bhd, two highly successful public-listed companies. 

Kee, in an interview at his office, said the decision to raise the price of oil palm seeds was due to cost rises. 

"With the recent hike in labour wages and foreign worker levy, fertiliser cost, electricity tariff and packaging material cost, we have no choice, but to raise seed pricings," he said.

This is because starting this month, plantation firms will pay a minimum wage of RM650 per month to plantation workers, with an additional productivity-linked RM200 incentive. It is estimated that this 10 per cent wage hike for employees would cost the industry an additional RM300 million per year. The arrears of wages and ex-gratia payment would further incur an additional RM364 million.

On the whole, the implementation of this new wage and extra remuneration will double Malayan Agricultural Producers Association (Mapa) members' oil palm production costs to RM2.2 billion from RM1.1 billion. AAR's parent companies are Mapa members.

"We've tried to absorb these costs, but at the same time, we need to take care of our shareholders' interest," he added.

To add salt to the wound, the Home Ministry has increased overall foreign worker levy by RM50, meaning employers in the plantation industry need to pay a higher levy of RM590 per worker.

"Whatever that is impacting plantation companies has a chain reaction on seed producers like us. We're equally hurt by these inflated costs," said Kee. 

Major seed producers like Felda Agricultural Services Sdn Bhd, Sime Darby Seeds & Agricultural Services Sdn Bhd and AAR are facing burgeoning labour cost.

Since 1986, AAR has been one of the 10 licensed seed producers in the country, contributing to the replanting of unproductive trees so as to raise the national oil palm yield.

According to Malaysian Palm Oil Board, some 40 million germinated seeds have already been planted by farmers in the first seven months of this year. Most of the replanting of old trees have been carried out in Sabah and Peninsular Malaysia while new plantings are undertaken in Sarawak.

Kee said, AAR is hoping to sell 8.5 million oil palm seeds this year, having sold 7.2 million last year. "We already have confirmed bookings for 8.6 million seeds in hand with deposits paid. Orders are still pouring in, but unfortunately, we cannot meet the demand for this year," he said.

The disincentives of subsidies

This is written by my boss.

 A FEW years ago, there was a meeting between an energy association with a group of business executives. The association was trying to convince the executives to use more efficient motors, which are the things that move elevators and escalators. 

Since these equipment virtually run during whole office hours and even 12 hours for shopping malls, using more efficient motors would translate to savings on electricity bills. But the meeting was rather boring as many would rather continue using existing motors that are cheap.

On top of that, electricity is also cheap, so why bother changing, some of them said, in private of course.

As long as power is cheap and subsidised, owners of office building and malls would still make money. The worst case scenario is that power prices jump and demand for efficient and more expensive motors also jumps.

This is hypothetical. But what Tenaga Nasional Bhd (TNB) said a few weeks ago came close to a worst case scenario for the country.

It said power plants were close to breaking point because of a gas shortage.

The lack of gas pushed TNB to squeeze all it can from coal-fired plants and hydroelectric ones. It also subjected gas plants to run on distillates for much longer than they should.

What was scary was that scheduled maintenance for certain coal plants were not done because doing so may take out much needed capacity from the national grid. In certain cases, special waivers had to be sought to do away with maintenance work.

TNB also used more water in its hydro plants to cover demand. Water levels at the Kenyir dam is at historical lows because of this.

This is bad because hydro plants are used to cover spikes in demand due to its quick response time. If it continues to draw too much water, it may not have enough in the future to handle these spikes.

As for gas plants, TNB has been buying so much distillates from oil companies that Malaysia literally ran out of the thing one day in June.

It was such a good customer that Shell decided to treat TNB management to lunch, according to chief executive officer Datuk Seri Che Khalib Mohamad Noh.

The shortage of gas has been well documented for a few years as the power sector and heavy industries that use gas complained about supply. The result now is higher gas and electricity prices.

But why was gas supply running low? Because the price of gas it sold was fixed at rates lower than the market price, Petronas as the supplier had no incentive to invest.

Common sense would dictate, why invest in a business that's not making money. This means it had no desire to look for new supplies or upgrade old facilities.

Petronas admitted as much in its August 23 press release.

"These subsidised gas prices have resulted in minimal investments in the exploration and development of gas projects by oil and gas players, constraining growth in supply capacity. Compounding this tight situation, Malaysia's offshore production facilities have been running at full capacity, exerting tremendous pressure on gas production systems and resulting in the unavailability of margin to absorb fluctuations in gas demand as well as to cater to unanticipated situations."

It is not just power plants that are running flat out, Petronas' gas facilities are also running at full steam.

The funny thing is, the industry knew years ago that something like this would happen.

"As way back in 2007, we worked with the government, TNB and end-users. We told them that if there is something to break, it's going to be massive and true enough, it's this year," Petronas CEO Datuk Shamsul Azhar Abbas told a media briefing last week.

To cap it all off, Petronas announced a fast-track RM15 billion project to look for more gas offshore Peninsular Malaysia. This involves digging into smaller and deeper fields.

What this episode highlights is the danger of subsidies. Not only can it be a burden to government finances, like petrol subsidies, it could even have bigger implications, like the neglect of investments in gas supply.

The cost of it is also great because it involves our reputation at a time when we want more investments, be it local or foreign. Investors will think twice when they think that energy supply is inconsistent.

Palm oil labelling smacks of hypocrisy

This is written by Dr Ahmad Ibrahim, a fellow of the Academy of Sciences Malaysia.

TRADE between Malaysia and Australia has always been good. Australia supplies beef to Malaysia. Malaysia sells palm oil, rubber and electronic items.

There are obvious reasons why Malaysia-Australia trade relations have been healthy. One is their proximity. The other has to do with the historic links between their business communities.

The strong link was built through many years of educational tie-ups between the two countries. Many Malaysians are products of Australian universities. In fact, many of Malaysia's leading heart specialists and surgeons had their training in Australia.

I myself graduated from Monash University way back when Malaysia used to beat Australia at football. In those days, Australia did not have a good football team. Its popular sports had always been Australian-rules football, or "footie". Soccer became popular only when immigrants from Europe popularised the game in the 1970s.

Australia has always been a destination for immigrants. The pommies who came from Britain were the earliest. They were mostly evicted to Australia. Australia then was the equivalent of our Pulau Jerejak. Nowadays, like Australia, Pulau Jerejak has also become a tourist destination.

Palm oil has for years been one of Malaysia's major exports to Australia. Many Australians love palm oil because of its bland taste. It does not have the fishy taste of soya oil.

Lately, the use of palm oil grew even more because of new nutritional evidence linking heart disease to trans-fats in margarine and shortening. These are not present in margarine made from palm oil. Trans-fats are mainly found in margarine made from partially solidifed sunflower or soya oils.

It often costs much less to make margarine using palm oil because palm oil is naturally semi-solid. Furthermore, because of its balanced composition, plus the lower levels of polyunsaturates, its use in high heat frying is just unbelievably stable.

Many would vouch for the fact that palm oil is the world's best oil for frying. Ask any instant noodle manufacturer in China, Japan, Korea and even Australia. They will tell you that palm oil is superior under high heat.

However, though palm oil is popular among many Australians, there are a few who have developed a dislike for it. They resort to all kinds of claims against palm oil to gain sympathetic financial support to run their outfits. The others who have harboured hate for palm oil are those who view palm oil as threatening their business. Still, others despise palm oil because it comes from Asia.

Despite the proclamation that Australia wants to be close to Asia, there are a few in Australia who prefer otherwise. For this group, their attempt to discredit palm oil goes as far back as the late 1980s and early 1990s. I remember one episode then. There was this maker of potato chips that printed derogatory remarks about palm oil on its labels.

It stated that palm oil was bad for the heart. And its chips were not fried in palm oil. They were, therefore, supposed to be healthier.

But such practices have since stopped. Why? Because there is now overwhelming science-backed evidence that palm oil is healthy and nutritious. Studies confirmed that palm oil can even challenge olive oil. These are not studies done by Malaysians. The positive results on palm oil came out of research done by independent scientists in the United States.

Now that there is no more credible claim against palm oil on grounds of poor nutrition, enemies of palm oil in Australia have cooked up another storm. This time they link palm oil to deforestation. And disappearing orang utans.

Despite all the evidence available to the contrary, this has not stopped some legislators there proposing a new labelling ruling on palm oil. They have proposed that all products that use palm oil must indicate so on the labels. The intention is to discourage consumers from choosing products containing palm oil. If consumers refrain from such products, then demand for palm oil will go down.

This they argue will reduce deforestation and help with the global carbon balance. At least, tropical rainforests will help absorb the massive greenhouse gas emissions from Australia's big mining industries.

What the people in Australia do not realise is that it is the uncontrolled emissions from Australia's big corporations that are doing more harm to the carbon balance than palm oil.

The Australian government has tried to cap such emissions through a kind of carbon tax. But this has generated a lot of opposition from big businesses there. Why? Because any such move would be at the expense of their bottom line. In fact, the issue has become very political. It may even lead to the defeat of the present government.

Instead of dealing with their internal carbon problem, some legislators have chosen to pick on palm oil. This would hopefully shift people's attention away from the carbon tax controversy. It is not only against the very spirit of the World Trade Organisation but also hypocrisy at its best.

The view is misguided and the Australian people should know about this. The palm oil industry has appealed to the good sense of legislators, who are better informed. They should stop the new ruling.