Sustaining oleo's pole position

Malaysia has been the world’s top oleochemicals producer for the last 15 years but is now facing stiff competition from Indonesia. With a 25 per cent market share, Malaysia is the global hub for basic oleochemicals. They are eventually turned into daily necessities like soap, shampoo, moisturiser, toothpaste, shaving cream and laundry detergent.

According to the Malaysian Palm Oil Board, the country exported RM9.06 billion worth of oleochemicals in the first 10 months of this year.

“With inflationary pressures from high feedstock prices, we’ll definitely surpass the RM10 billion mark by year-end,” Malaysian Oleochemical Manufacturers’ Group (MOMG) chairman Tan Kean Hua told Business Times in an interview in Kuala Lumpur.

But the industry’s biggest challenge is from its neighbour. The extremely high palm oil export taxes in Indonesia have distorted the playing level.

Tan explains that in August 2011, the Indonesian government had raised export taxes drastically to boost refining capacity and downstream activities.

Crude palm oil (CPO) export tax was set at 22.5 per cent and refined palm olein tax at 13 per cent. This means that CPO and crude palm kernel oil are cheaper for oleochemical producers there. What's more, oleochemicals exported from Indonesian shores are tax-free.

As expected the tax incentives have spurred investments in Indonesia's nascent oleochemical industry. Musim Mas, Indonesia's biggest oleochemical player with around 750,000 tonnes annual capacity in Medan, is said to be planning expansion.

Wilmar International and US-based Elevance Renewable Sciences too are setting up a 180,000-tonne per year bio-refinery in Surabaya, Indonesia, which is expandable up to 360,000.

"With cheaper feedstock available to the Indonesian oleochemical producers, we no longer compete on a level-playing field. Anyway, with one hand tied to our back, we still have to fight," said Tan.

In the early 1980s, the US, Europe and Japan were the major producers of oleochemicals or fatty acids, accounting for more than 90 per cent of the world's total production. But from 1985 onwards, there was a big shift from these developed countries to Southeast Asia due to the abundance of palm oil derived oleochemicals.

In Europe, with Croda and Cognis selling most of their oleochemical assets, Oleon Holding NV is now the largest there with a 500,000-tonne a year capacity. Oleon's parent is Sofiprotéol, the financial organisation of the French vegetable oils and proteins sector.

In 2006, half of Cognis' oleochemical business was sold to Golden Hope Plantations Sdn Bhd, which is now part of Sime Darby Bhd. Two years later, Cognis owners sold the remaining 50 per cent stake to Thailand's PTT Chemical International and renamed the entity Emery Oleochemicals. Last year, Cognis itself was bought up by German chemical giant BASF.

Currently, the world's oleochemicals exports are around 10 million tonnes, with more than half from Southeast Asia.

One of the reasons for Malaysia's pole position stems from its process engineers and chemists' technological capabilities to process palm oil and palm kernel oil into more than 100 types of downstream products.

There are 18 local oleochemical companies with a combined annual capacity of 2.6 million tonnes. Their plants make basic oleochemicals like fatty acids, fatty alcohols, esters and refined glycerine. These are then formulated to make toothpaste, soap, dish washing detergent, industrial lubricants and even food emulsifiers.

Malaysian companies are expanding, too.

Tan, who is also IOI Oleo executive director, said his company is investing RM130 million to build a new fatty ester and a 20,000-tonne specialty oleo derivative plant at the Prai Industrial Complex in Penang.

Currently, IOI Oleo Group is the leader in Malaysia with annual capacity of 950,000 tonnes.

KLK Oleo Group is the second biggest, with facilities churning out 780,000 tonnes.

KLK Oleo Group managing director A.K. Yeow said the company is investing in excess of RM600 million to build an integrated methyl ester sulphonate and fatty alcohol plant in Shah Alam, Selangor. “We’re also putting up a specialty fatty ester facility in Klang,” he said.

Emery Oleochemicals (M) Sdn Bhd operates a 300,000-tonne per year plant in Telok Panglima Garang, Selangor. It is investing more than RM400 million to go further downstream.

Emery Oleochemicals group chief executive officer Dr Kongkrapan Intarajang said, “Our plan is endorsed by Pemandu (Performance Management and Delivery Unit). One of our highlights is a 25,000 tonne-plant to produce biolubricants, green polymer additives and surfactants. It is now being commissioned”.

When asked on the industry outlook, Tan acknowledged that some quarters worry about Europe’s sovereign debt crisis eroding customers’ buying confidence. MOMG, however, remains optimistic. “We’re a cost-plus business, oleochemicals are a necessity. It is present in household cleaning products, toiletries, cosmetics, industrial and pharmaceutical items we use everyday,” he said. “Overall, there’s customer base expansion from emerging markets,” Tan added.

One Response to Sustaining oleo's pole position

  1. In April 2011, EU regulators fined Procter & Gamble, Henkel and Unilever a total of €315.2 million (or US$456 million) for price-fixing on powdered laundry detergent.

    The cartel lasted from January 2002 until March 2005 and covered Belgium, France, Germany, Greece, Italy, Portugal, Spain and the Netherlands.

    Unilever laundry detergent brands include OMO and Radiant; Procter & Gamble owns the Ariel and Tide brands; while Henkel produces Persil.

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