Archive for October 2012

RSPO propose to tighten land clearing standards

This is written by my colleague Rupa Damodaran.

SINGAPORE: THE Roundtable on Sustainable Palm Oil (RSPO) is seeking to tighten its standards, making land clearance for planting oil palms more difficult from 2013.

If Malaysian and Indonesian oil palm growers, who form the bulk of the industry, disagree to the proposed changes, it could delay the multi-stakeholder body's first review of its principles and criteria -- which govern the standards, said its president Jan Kees Vis.

"Malaysian, Indonesian and African growers would need time to go back and talk with their colleagues if they want to go ahead with the proposed changes," he said, at a media briefing here yesterday. He added the land use criteria could be the biggest impasse in the review.

The review has been extended by another six months to March 2013 to accommodate various other issues affecting the palm oil industry.

RSPO existing standards, under its eight principles and 39 criteria to define sustainable palm oil, have not been clear on labour and human rights, greenhouse gas in relation to land use change, greenhouse gas (GHG) emissions from current operations.

The GHG and carbon footprint calculator came about after the principles and criteria were established in 2004.

"What we are saying is that if your current business model is to increase production through replanting, please expand on areas which have been deforested earlier," he said.

Vis also said, with the growth of palm oil demand expected to double from 50 million tonnes now to 100 million tonnes in 2015, the RSPO needs to work to transform the huge markets in China and India which consume eight million tonnes to absorb certified sustainable palm oil (CSPO).

Currently, it is the large consumer goods manufacturers like Walmart and Unilever which can introduce the CSPO in these two countries but both governments need to extend the support, he said.

The RSPO has boasted that the supply of CSPO globally has soared 250 per cent between 2009 and 2011 while the sales volume had grown six times.

Apart from the Netherlands, Belgium has announced that it will source only CSPO by 2015, as a pledge by an alliance of major processors, manufacturers and industry associations. Yesterday, the UK also announced a similar interest.

Meanwhile, Vis said the RSPO was still having talks with Indonesia to enable its palm oil industries which have received the mandatory Indonesian Sustainable Palm Oil (ISPO) to benefit from the international RSPO standards by complying with the additional standards.

He noted Gabungan Pengusaha Kelapa Sawit Indonesia (GAPKI) or the Indonesian Palm Oil Association withdrew its membership with RSPO last year to support the ISPO. "If they (the individual growers) are RSPO-certified I hope they will be certified (automatically) in Indonesia too", he added.

Planters call for flexible foreign worker intake system

KUALA LUMPUR: Oil palm planters want the government to re-activate the fast-track system for foreign worker intake approval or allow agents to bring in the extra hands to harvest some five million tonnes of oil palm fruits rotting in the fields.

Malaysian Estate Owners Association (MEOA) president Boon Weng Siew said the industry, which has been over-dependent on Indonesian workers to harvest the oil palm fruits, now find it increasingly difficult to recruit workers from the republic because of competition from plantation expansion there.

"Although the government has recently allowed recruitment from Bangadesh, it is on government-to-government basis," he said. "The negotiations with Bangladesh is taking too long. Many estates continue to face acute labour shortage to harvest the oil palm fruits," he added.

"The oil palm industry has been losing billions of ringgit in palm oil export earnings every year," he told Business Times in a telephone interview from Johor Bahru yesterday.

He estimated that some five million tonnes of oil palm fruits are rotting in the fields. That is equivalent to a million tonnes of crude palm oil. At current pricing of RM2,500 per tonne, that translates to RM2.5 billion in opportunity loss of export earnings.

"Foreign workers, which used to make up half of the 600,000 workforce in the estates, have now been severely reduced," he said. "We urge that foreign worker intake not be confined to government-to-government negotiation with Bangladesh. Agents should be allowed to bring in foreign workers from any country," Boon said.

"Otherwise, the government should re-activate the foreign worker intake approval fast-track system under the Plantation Industries and Commodities Ministry. This is almost equivalent to a one-stop centre. Planters prefer this option rather than having to deal with three or four ministries," he added.

Established in 1931, MEOA represents small- and medium-sized estates of more than 40 hectares.

Boon highlighted that plantation companies have always been offering productivity-based salaries. A harvester, for instance, can earn between RM1,800 and RM2,000 a month, depending on the quantity and quality of fruit bunches he harvests. "A family of three working together can earn up to RM3,000," he said.

Furthermore, the job offers housing, uninterrupted supply of electricity and piped water, medical, schooling and recreation facilities free of charge by the estate owners. These are now enjoyed by the foreign workers.

IOI Corp Bhd executive chairman Tan Sri Lee Shin Cheng yesterday concurred with Boon and reiterated the call for the government to be more flexible in foreign worker intakes.

"The trees are fruiting but there's acute shortage of harvesters and this is affecting the country's palm oil export earnings. The industry has been finding ways to mechanise for the last 40 years and the reality is it is difficult to mechanise. If it were that easy, we would have done it a long time ago," Lee told reporters after the company's shareholders' meeting here yesterday.

Lee said plantation companies understand and fully support the government policy to employ more locals and enhance mechanised harvesting on the estates. The reality is far from expectations.

Many young locals entering the labour market are just not interested in menial jobs like the harvesting of oil palm fruits. "We do not want to be too dependent on foreign labour, but do we have any other feasible and practical alternatives?" he questioned.

IOI to start China project next year

PUTRAJAYA: IOI Corp Bhd, an esteemed property developer in Malaysia and Singapore, will embark on a RM2 billion property development in China next year.

"We've bought a piece of land in the Jimei district of Xiamen for 1.2 billion yuan (RM587 million). We have plans for a mixed development comprising a shopping mall, a hotel and office space. The residential space will be in the form of condominiums and villas," said IOI Corp Bhd executive chairman Tan Sri Lee Shin Cheng.

"The development cost would be around twice the cost of the land," he told reporters yesterday after its shareholders' meeting here yesterday. Also present were his sons Datuk Lee Yeow Chor and Lee Yeow Seng, who are executive directors.

Yeow Chor said about RM600 million of IOI Corp's cash reserves of RM2.7 billion has been committed to finance the land cost in Xiamen.

"Our cash reserves is not too high or too low at the moment. Should there be some good landbank acquisition opportunities, we have the financial might to seize it," he said.

As early as 2007, IOI invested US$62.63 million to take up a 33 per cent stake in PT Bumitama Gunajaya Agro. This was part of its plan to participate in Indonesia's oil palm expansion and ensure upstream profit growth.

Today, Bumitama has an agriculture landbank of some 200,000ha in Indonesia, of which some 120,000ha are already planted up with oil palms. Of that total area, 87,851ha are held under the company and 31,311ha under the smallholders or plasma schemes. Currently, IOI Corp has a 30 per cent stake in Singapore Stock Exchange-listed Bumitama Agri Ltd.

TH Plantations plans Sarawak acquisitions

KUALA LUMPUR: TH PLANTATIONS Bhd is set to buy 6,500ha of oil palm estate and a quarry in Sarawak for more than RM200 million.

"It's a brownfield block in Bintulu, away from native customary land. The oil palms are young, between two and five years old," a source said.

"It's going for RM20,500 per hectare. It is at a slight premium because this Bintulu estate includes a quarry mine, separately priced at around RM70 million. It has income-generating rock reserves of up to 30 years," the source told Business Times.

"Currently, TH Plantations landbank is about 45,000ha. If you count the 46,000ha block of estates to be transferred from parent company Lembaga Tabung Haji and this Bintulu estate, it will come up to around 100,000ha," the source said.

Five months ago, TH Plantations told the stock exchange that it wanted to buy 45,738ha of agricul-ture landbank from its parent company Lembaga Tabung Haji for RM536 million.

The acquisition is to be satisfied via the issuance of 209.23 million new THP shares at an issue price of RM2.56 per share. If the deal goes through, TH Plantations' agriculture landbank would double from the current 44,933ha to 90,671ha.

The deal to double TH Plantations' landbank hit a snag last week when Sabah Forestry Department rejected the execution of the teak and rubber plantation development agreement with TH-Bonggaya.

Sweet serendipity

In my nine years as a journalist, today's the first time I drove my car until it ran out of fuel. Uuuggghhh ... I know ... it's terribly embarassing. As my car slowed down and rolled to the side of the road near Universiti Putra Malaysia, I had this sinking feeling in my heart when I saw a police car behind me. There were four policemen. One of them, with a clipboard, walked towards my car.

"Oh car is out of petrol and I'm going to get a summon? Sigh ..." I thought to myself. I got out of my car and explained my predicament to the policeman. He listened attentively and asked if I could still start up my car. I turned the ignition and the car engine whirred.

He then told me to make my way to the petrol station 1km ahead while he and his colleagues followed my car from behind. My happiness, however, was short-lived. The car engine sputtered and glide to a stop, again. I'm about 500m away from the petrol station. "So near ... yet so far."

This time, three policemen got down from their car and walked to mine. As they positioned themselves to push my car from behind, one of them came to the front and told me to engage my car's gear to "N" and keep the steering wheel straight.

They pushed my car. Throughout that 3-minute journey I thought to myself! There are really kind souls among the police force. Once we reached the petrol pump, I pulled up the handbrake and got out of the car. The policemen, all hot and sweaty from pushing my car, took turns to advise me on ways to take better care of my car. I thanked them from the bottom of my heart and we shook hands.

Before fuelling up my car, the attendant at the petrol station tinkered with the fuel filter. "Mesti buat macam ini. Kalau tidak, nanti banyak problem (You need to do this first. If not, there'll be problems later)," he said. The attendant turned the ignition on and off a few times for the fuel pump to push the fuel into the engine. The car started to purr again. Yay! I grinned at the attendant. He winked and waved goodbye, "OK, boleh jalan (OK, you can continue your journey)."

I reached into my handbag and my assignment sheet stated I'm required to cover an Malaysian Palm Oil Board (MPOB) event at Equatorial Hotel Bangi. Sigh...the only place I know in Bangi is the MPOB headquarters. I made a few phone calls and drove over.

Soon as I reached MPOB headquarters, En Saufi returned my call and got En Aedham to escort me to Equatorial Hotel. As I started the car engine again, I thought to myself ... wow! There are really kind souls among MPOB officials :)

China likely to buy 6m tonnes palm oil

KUALA LUMPUR: China's purchase of palm oil, mainly from Malaysia and Indonesia, is likely to touch six million tonnes in 2013, thanks to increasing appetite for the staple cooking ingredient, says the Malaysian Palm Oil Council (MPOC).

"The value add of palm oil will spur more usage of this commodity," said MPOC regional manager for China market Desmond Ng.

"Currently, palm oil is mainly used as a deep-fry and baking ingredient in many restaurants and food-processing factories in China," he said in his presentation at the Outlook of China's Oils and Fats Industry in 2013 at the Palm Oil Trade Fair and Seminar (POTS) 2012 yesterday.

According to the Malaysian Palm Oil Board's data, from January to September this year, China only bought 3.39 million tonnes of palm oil from Malaysia, 19 per cent less than last year's 3.95 million tonnes. 

When asked on China's palm oil demand for the rest of the year, Ng replied, "it's likely to end at around 5.7 million tonnes, as brisk shipments are starting to pick up in preparation of the Lunar New Year in February 2013". 

He explained that China's palm oil purchase in the last three years were below six million tonnes as local soyabean farmers enjoyed good harvest and the government thus slowed down on palm oil imports. 

He also said China had, in the last few years, been importing more soyabeans instead of soyaoil becau-se local livestock farmers demanded more soyameal to feed their pig, cattle, dairy and poultry farms.

"Soyameal demand in China has reached its peak and we think it will start to taper next year. So, instead of importing more soyabeans, we hope to see more purchase of palm oil ... perhaps six million tonnes," Ng said. 

Asked on implication of China government's tighter controls on blending of palm olein with other imports of vegetable oils for the retail market, which will come into effect from January, Ng said since palm oil is mainly used by food processors and the baking community, and is "classified as industrial use", it is not likely to have too big of an impact".

China to tighten import quality of vegetable oils

KUALA LUMPUR: In the news article titled “China’s palm oil imports likely to touch 6m tonnes”, Malaysian Palm Oil Council regional manager for China market Desmond Ng clarified that from January 2013, China is tightening control on the quality of vegetable oils imports.  

The new rules do not mention blending of palm olein with other vegetable oils.  

He said palm oil shipments from Malaysia are likely to qualify quarantine rules imposed on the quality of vegetable oil imports into China as long as they meet refiners’ specifications at the seaports. 

Report on palm oil tax policy flip-flop 'mischievous'

KUALA LUMPUR: Plantation Industries and Commodities Minister Tan Sri Bernard Dompok yesterday refuted reports implying Malaysia might have flip-flopped in its decision on palm oil taxes.

"I don't know who said that, it's not me," the minister retorted, when asked if the government may have changed its mind and decided to carry on issuing duty-free CPO (crude palm oil) export quotas after December.

Dompok, who was clearly irate over the confusion and undue anxiety the news report had caused among vegetable oil traders, said the unidentified person who claimed that Malaysia had a policy reversal "is mischievous". 

"We stick to what we have announced. There's no deviation," Dompok told Business Times on the sidelines of the Palm Oil Trade Fair and Seminar (POTS) 2012, organised by the Malaysian Palm Oil Council, here, yesterday.

The minister once again confirmed that Malaysia will adopt a flexible CPO export tax structure that mimics Indonesia's from January 1. Malaysia will also abolish duty-free CPO export quota. 

The new CPO export duty will fluctuate on a monthly basis, between 4.5 per cent to 8.5 per cent, from 23 per cent currently. If palm oil price hovers between RM2,250 and RM2,400 a tonne, the tax is 4.5 per cent. And if the palm oil prices were to jump to RM3,450 per tonne, the tax is 8.5 per cent.

Dompok, while noting refined palm oil will remain tax-free, said the government is committed to ensuring that downstream players have a level playing field and not suffer in the hands of refineries from another country from 2013.

Palm Oil Refiners Association of Malaysia (Poram) chairman, Wan Mohd Zain Wan Ismail, who was also at the conference, said the reports suggesting Malaysian plantation companies with overseas refineries had asked the government to reconsider its policies had caused much confusion among traders. "That's not true, it was mischievous reporting," he said.

September 11 2011 is a date Poram members will always remember. It was the day the Indonesian government announced its intention to widen the tax gap between crude and refined palm oil. 

This made CPO and crude palm kernel oil very cheap for downstream businesses in Indonesia. On top of that, processed palm oil in the form of cooking oil, soaps and detergents shipped out from Indonesian shores are tax free.

The Indonesian government's move, since October 2011, created an unfair playing field, rendering refiners in Indonesia to reap fat profits while those in Malaysia suffered losses. 

It had been more than a year of headache and heartache for Poram members, particularly independent refiners who do not own any estates to balance out their losses.

In protecting its members' interest, Poram suggested to the Malaysian government to lower the current 23 per cent CPO export tax and do away with duty-free CPO. It suggested that by mirroring the tax margin between Indonesia's CPO and refined palm oil, Malaysia's refiners can at least stand a chance to compete based on existing infrastructure and plant efficiency.

Mielke sees prices rising to RM3,300

KUALA LUMPUR: THE reception at the Palm Oil Trade Fair and Seminar (POTS) 2012, here, was lukewarm as the vegetable oil analysts gave moderate views on how palm oil prices will fare in the months ahead.

As some 800-odd participants settled in at the grand ballroom of a hotel here, Hamburg-based ISTA Mielke GmbH executive director Thomas Mielke lifted the mood in the hall when he said consumers around the world are becoming more dependent on palm oil due to insufficient production of other oils and fats.

He went on to say that he expects global demand for palm oil to pick up as the wide discount to soya oil, of more than US$300 (RM918) per tonne, is not sustainable. "We are going to see more global demand shifting to palm oil as there is considerable shortage in soft oils," he said.

Seven months ago, at the Palm and Lauric Oils Conference & Exhibition: Price Outlook 2012/2013 (POC 2012), Mielke predicted that Malaysia's palm oil supply would hit a record high of 19.3 million tonnes. Yesterday, however, he trimmed his forecast to 18.5 million tonnes, two per cent less than last year's 18.9 million tonnes. 

As for Indonesia, he maintained his forecast that output will expand to 25.5 million tonnes.

Mielke, who is also editor of Oil World journal, stressed that the oil-palm industry must continue its focus on yield improvement as a way to overcome limitations of arable land and water, so as to retain world market leadership.

"I think palm oil output will not be enough to offset shortage in soya and rape seed oils," he said.

Mielke, a well-respected and authoritative vegetable oil analyst, once again rejected calls by green activists for a moratorium on oil palm plantings. "In order to satisfy the daily oils and fats needs of a growing world population, farmers need to speed up on their oil palm plantings. The world continues to face shortage of edible oils," he added.

Yesterday, the third month benchmark palm oil futures on the Malaysian Derivatives Exchange fell RM4 to close at RM2,466 per tonne.

In conclusion, Mielke said palm oil price, "which is only likely to bottom out at the end of the year, is likely to rise to RM3,300 per tonne towards the second quarter of 2013, as palm oil needs to fill up the shortage of soft oils in the world".

Jupiter Securities chief market strategist Benny Lee Wan Yu, who was bullish on palm oil prices last month, moderated his forecast this time. As he took the stage, he said palm oil is currently oversold. While he cautioned that palm oil could settle further to RM2,230 per tonne, he decided to maintain a positive outlook that prices are likely to rebound to between RM2,650 and RM2,800 per tonne by the end of the year.

LMC International Ltd chairman Dr James Fry was next to present his opinions. He reiterated his long-held view that palm oil prices would continue to be highly influenced by petroleum prices. 

"When vegetable oil prices approach that of petroleum, biodiesel production and direct burning of vegetable oils become increasingly attractive options. This creates a floor price," he said.

Fry, while refraining from giving a price forecast, anticipated that some of Malaysia's 2.5 million tonnes of palm oil stocks will level off in two months as biodiesel consumption picks up.

Malaysia's Plantation Industries and Commodities Minister Tan Sri Bernard Dompok had announced that the government will, from January onwards, adopt a flexible crude palm oil (CPO) export tax structure that mimics that of Indonesia's and, at the same time, also abolish duty-free CPO export quota.

Godrej International director Dorab Mistry struck a sobering chord among the audience when he said the new palm oil tax regime will not clear away high inventories at Malaysia's refineries and mills. "The current situation is brought on by strong production, flat demand and collapsing biodiesel consumption. To reduce stocks, Malaysia must endure short-term pain to enjoy long-term gain. The cure for low prices is lower prices," he said.

In calling himself a lifelong friend of the Malaysian palm oil industry, Dorab said Malaysia should remove all palm oil taxes and quotas so that palm oil prices can begin to stimulate robust demand at a lower level of RM2,200 per tonne. At this level, which Dorab said is not oppressive, planters can still make decent profits.

Malaysian palm oil exports to fall 10pc

KUALA LUMPUR: MALAYSIA's palm oil exports for the year are expected to shrink 10 per cent from last year's record high of RM80.4 billion, as palm oil prices had been on a downtrend as a result of Indonesian government's restructuring of its palm oil taxes to woo more investments in its downstream activities.

"There will be a shortfall from last year's since palm oil prices have fallen," said Plantation Industries and Commodities Minister Tan Sri Bernard Dompok.

In the first nine months of this year, the Malaysian Palm Oil Board (MPOB) reported that the country had shipped out RM53.98 billion worth of palm oil products. 

Since October 2011, the Indonesian government had widened the export tax gap between crude palm oil (CPO) export and refined products drastically to boost refining capacity and downstream activities. As a result, crude palm oil and crude palm kernel oil prices had been on a downtrend.

The minister was speaking to reporters at the Palm Oil Trade Seminar (POTS) Kuala Lumpur organised by the Malaysian Palm Oil Council (MPOC) here yesterday. Also present at the press conference was MPOC chairman Datuk Lee Yeow Chor.

MPOB numbers also revealed that Malaysia's palm oil stock level for September stood at 2.48 million tonnes. Dompok assured traders that they should not be too worried of overcapacity talks because the country has storage levels of up to five million tonnes.

On export trends, it is interesting to note that in the first nine months of this year, MPOB data showed that India bought 1.84 million tonnes of palm oil from Malaysia, 60 per cent more than last year's 1.15 million tonnes.

Dompok acknowledged that the higher shipment of CPO to India is very much facilitated by policy changes by both the Indian and Malaysian government three months ago. 

Since July, India, which imports more than half of its total vegetable oil consumption of about 16 million tonnes a year, ended a six-year freeze on the base import price of refined palm olein, allowing easier imports of CPO. 

At the same time, in Malaysia, Dompok also raised the allocation for duty-free CPO exports by another two million tonnes bumping up the yearly quota to a record high of five million tonnes.

When met at the conference, India's Solvent Extractors' Association executive director Dr B.V. Mehta said: "My country imports 7.5 million tonnes of palm oil in a year from Indonesia and Malaysia. Out of that total, 6.5 million tonnes are in the form of CPO. "Currently, it's definitely much cheaper to import CPO from Malaysia than Indonesia."

Malaysia's biggest palm oil client is China. As the largest vegetable oil consumer in the world, China's palm oil usage makes up 15 per cent of global consumption. Palm oil is the second most consumed there after soyaoil.

In the last few years, China has started to import more soyabeans instead of soyaoil. This is because the Chinese government wants more crushing activities domestically and more soyameal to feed its pig, cattle, dairy and poultry farms.

In the first nine months of this year, China only bought 2.39 million tonnes of palm oil from Malaysia, 19 per cent less than last year's 2.95 million tonnes. 

MPOC's Lee commented that China had bought less palm oil as it had wanted to balance its vegetable oil import profile. "Apart from the negative impact of slower economic growth rate in China, the Chinese government is also looking to balance their imports of palm with that of soyaoil," he said.

Smallholders to get lion's share of allocation

KUALA LUMPUR: The government is allocating more than RM600 million for the palm oil sector under the 2013 Budget, a senior minister said. The bulk of it, or RM432 million, will go to independent smallholders to embark on new plantings and replanting of their unproductive oil palm trees.

"The RM400-odd million allocation is expected to benefit some 170,000 independent smallholders in the country. These are farmers who own 40 hectares or less ...they are eligible for the replanting grant," said Minister in the Prime Minister's Department Datuk Seri Idris Jala, who is also chief executive of the Performance Management and Delivery Unit (Pemandu).

He added that the allocation works out to RM7,500 a hectare for oil palm land in Peninsular Malaysia and RM9,000 a hectare in Sabah and Sarawak. There is also the RM500 in subsistence allowance to farmers whose income is solely dependent on oil palms.

Idris was speaking to reporters at the Palm Oil Trade Seminar (POTS) Kuala Lumpur organised by the Malaysian Palm Oil Council (MPOC) here yesterday. 

As for new plantings, Idris said the incentive is only given to those who own up to 5ha in Peninsular Malaysia and a maximum of 7ha for those in Sabah and Sarawak.

He said the 2013 Budget also proposes just over RM200 million as a continuation of the government's commitment to incentivise integrated plantation firms to move further downstream.

Of that total, RM127 million will be channelled for the development of oleochemical derivatives towards higher production of value added detergent, lubricants and bio-plastics. 

The remaining RM75 million will be used to incentivise further investment in pharmaceuticals and nutraceuticals such as premium cooking oils.

Levelling the playing field

By Rupinder Singh and Ooi Tee Ching

KUALA LUMPUR: Palm oil prices yesterday fell RM23 to close at RM2,500 per tonne as traders take heed that Malaysia will only adopt the new crude palm oil (CPO) tax regime and do away with duty-free export quotas from January 2013 onwards.

For the past week, palm oil price recovered from a low of RM2,255 per tonne when news reports of a possible cut in CPO tax first emerged.

Yesterday, Plantation Industries and Commodities Minister Tan Sri Bernard Dompok announced the Cabinet has decided to adopt a flexible CPO export tax structure that mimics that of Indonesia's. At the same time, Malaysia will also abolish duty-free CPO export quota.

"We want to create a situation to ensure that downstream players in Malaysia have a level playing field and they won't suffer in the hands of refineries from another country," he told reporters after the launch of the Malaysia Cocoa and Chocolate Day here yesterday.

He explained that the new CPO export duty will fluctuate on a monthly basis, between 4.5 per cent to 8.5 per cent, from 23 per cent currently.

"If palm oil price hovers between RM2,250 to RM2,400 a tonne, the tax is 4.5 per cent. And if palm oil price were to jump to RM3,450 per tonne, the tax is 8.5 per cent," the minister said.

He also confirmed that refined palm oil will remain tax-free.

In addition to this measure, Dompok said, his ministry is in consultation with relevant parties to assess the viability of implementing the B10 Programme (blending of 10 per cent palm biodiesel with petroleum diesel) for the unsubsidised sector. 

"This measure could increase the consumption of CPO by another 300,000 tonnes a year," he said.

Currently, the B5 Programme (blending of 5 per cent palm biodiesel and 95 per cent of petroleum diesel) is ongoing in the central region covering Selangor, Malacca, Negeri Sembilan and the Federal Territories of Kuala Lumpur and Putrajaya; consuming some 112,000 tonnes of CPO annually.

Dompok also said that the government is committed in its ongoing efforts to incentivise replanting of old and unproductive oil palm trees. It was estimated that the replanting of 100,000ha will reduce CPO supply by 300,000 tonnes.

"We will continue with measures to ensure the growers receive remunerative income. The smallholding sector accounts for 40 per cent of five million hectares of oil palm in the country," he said.

Green Ocean shares jump most in six months

This is written by my colleague Goh Thean Eu.

KUALA LUMPUR: Green Ocean Corp Bhd's shares jumped by over 16 per cent yesterday, its highest in more than six months.

The company, a premium cooking oil exporter, saw its shares on Bursa Malaysia close 16.67 per cent higher at 31.5 sen, with more than 15.7 million shares traded. Green Ocean was one of the top 10 active stocks yesterday. It was also the highest closing since March.

"I'm not sure why the shares moved up or who bought the shares. According to normal procedures, we will only know (the buyers' details) three days later," said Green Ocean Corp managing director Lee Byoung Jin.

While Lee is unsure of the renewed interest, brokers said that the buying interests may be due to investors' expectations that the company may post an improved quarterly financial results for the quarter ended September 30 2012. 

The company, which had been bleeding losses for four years, is banking on the Novelin technology to get back to profitability. Malaysian Palm Oil Board developed the technology and Green Ocean pays the board a royalty for a 20-year exclusive use.

The Novelin technology allows Green Ocean to produce palm cooking oil which has cold stability at 0°C, which means it remains liquid and clear in cold temperature. Regular palm-based cooking oil tend to become jelly-like and cloudy at about 24°C, rendering it not popular among retail clients during winter. 

It was reported that the company is targeting a net profit of RM2.5 million for the financial year ending March 31 2013 and RM15-20 million net profit for the financial year ending March 31 2014. 

However, the management clarified that the target is achievable provided it signed a supply and production deal with a conglomerate. In February, Green Ocean told Bursa Malaysia that it was still in talks with the conglomerate. To date, no agreement has been signed.

Green light for CPO export tax cut

PETALING JAYA: THE Cabinet has agreed to lower crude palm oil (CPO) export tax from the current 23 per cent as a means to stem falling palm oil prices, Plantation Industry and Commodities Minister Tan Sri Bernard Dompok said.

CPO prices had been on the downtrend for months but three weeks ago, it suddenly plunged. On October 2, palm oil posted its biggest loss in nearly three years. It tumbled nine per cent to RM2,255 per tonne - its steepest daily drop since the 2008 financial crisis.

But since news reports of a possible cut in CPO tax surfaced a week ago, palm oil prices had risen and started to stabilise at around RM2,400 per tonne.

Yesterday, the third-month benchmark CPO futures traded RM19 higher to close at RM2,457 per tonne.

"The Cabinet has approved the lowering of the CPO tax, but we've not decided on the quantum," Dompok said, suggesting that it might be known tomorrow.

He was speaking to reporters after officiating at the opening of the International Rubber Technology and Economic Congress 2012 here yesterday.

Palm Oil Refiners Association of Malaysia (Poram) had proposed to the government to lower the CPO export tax to between eight and 10 per cent and do away with duty-free CPO.

The association suggested that by mirroring the tax margin between Indonesia's CPO and refined palm oil, Malaysia's refiners can at least stand a chance to compete based on existing infrastructure and plant efficiency.

Oil palm planters, while admitting the lowering of the 23 per cent CPO tax would allow refiners be more competitive, said a more practical rate is between four and five per cent. "The proposed rate of between eight to 10 per cent is still prohibitive. If the CPO tax rate is lowered to between four and five per cent, it is still bearable for planters," a Sabah-based planter reportedly said.

To a query if the government plans to do away with duty-free CPO, Dompok said: "I'm aware that Poram's request is a two-pronged mechanism. All these details will be discussed this Friday."

Yesterday, Malaysian Palm Oil Board reported that September palm oil stocks rose 17 per cent to 2.48 million tonnes from 2.11 million tonnes in August.

In response, Dompok said both Indonesia and Malaysia, the world's two biggest palm oil producers, are seeking to support prices by reducing stocks through more domestic usage of the commodity. "We want to create more domestic demand for CPO by extending biodiesel usage nationwide. Currently, the B5 mandate only covers petrol stations in the central states of Peninsular Malaysia," he said.

B5 is a blend of 95 per cent regular diesel with 5 per cent palm biodiesel.

"When the B5 mandate is extended nationwide, the production of biodiesel will take up about 500,000 tonnes of palm oil. This will help to considerably reduce the current high palm oil stock level," he said.

"The government has, so far, spent more than RM50 million to pay for the blending facilities at petroleum companies' depots. We hope to extend this initiative to all 36 fuel depots nationwide by year-end," he added.

Indonesia, Malaysia to stem falling palm oil prices

JAKARTA: (Reuters) -- INDONESIA and Malaysia, the world's dominant palm oil producers, are in talks to form a joint body that will seek to support prices by reducing stocks and controlling supplies of the edible oil, governent trade officials said yesterday.

Malaysia and Indonesia together account for about 90 per cent of the global palm oil supplies, of around 40 million tonnes.

Trade and commodities ministers discussed bilateral proposals for palm oil at a meeting on Monday, and floated the idea of limiting plantation expansion and stepping up industry and biofuel use.

Although no decisions have yet been made, Indonesia's Trade Minister Gita Wirjawan said future cooperation would be similar to that already in place for the region's rubber industry.

"We will sit together to discuss our action to drive the palm oil price," Gita told reporters yesterday. We are looking for bilateral cooperation on this issue. It may be similar to what we have done on rubber."

The International Tripartite Rubber Corp (ITRC) and the International Rubber Consortium (IRCo), which groups senior government officials from top producers Malaysia, Thailand and Indonesia, meet regularly to discuss how to help the industry.

Benchmark Malaysian palm oil futures edged up yesterday to close at RM2,438 per tonne, supported by the prospect of a possible export tax change in Malaysia, after having slipped to a near three-year low of RM2,255 per tonne last week on concerns over rising stocks and slowing demand.

One analyst was sceptical on how far the two countries would cooperate, since they have to compete for customers. "I'm in two minds about this," said Abah Ofon, a commodities analyst at Standard Chartered in Singapore. If they do come together in a genuine fashion to get more involved in the market, it's going to be a tad more effective than what happened with the rubber industry."

Attempts to boost rubber prices by the three top producers are often fragmented because the issue is very political in Thailand, while Malaysia is a small producer even though it is a leading consumer.

"Even in the short-term, if they do decide to have a stranglehold on the market, they can," added Ofon. "But I'm not entirely sure about how well they can cooperate, given the fact that they are competing markets."

Indonesia moved last year to cut export tariffs on refined palm oil, boosting margins for domestic processors and undercutting downstream competitors in Malaysia and buyers in India.

Late last week, Malaysia delayed a decision on a proposal to cut crude palm oil export taxes to between 8 and 10 per cent from 23 per cent.

Both countries say working together on joint palm oil export-tax proposals is not on the agenda, but that both governments are due to meet for further talks within two weeks.

"There are several options for Indonesia-Malaysia palm oil cooperation," added Deddy Saleh, director general of foreign trade at the Indonesian trade ministry. We can implement plantation replanting for old oil palm trees," he said. "We also can increase biofuel usage through government subsidies."

FGV plans Philippine venture after peace deal

KUALA LUMPUR: (Reuters) -- Felda Global Ventures Holdings Bhd (FGV), the world's largest crude palm oil producer, is the first foreign investor to evince interest in the southern Philippines after Manila agreed on a historic peace deal with rebels, potentially opening up tracts of farm land.

The Philippine government and Moro Islamic Liberation Front rebels agreed on Sunday on a pact to end 40 years of conflict in the impoverished southern region of Mindanao.

Officials have cautioned that the deal is only a first step as the two sides need to thrash out details on the scope and powers of a new autonomous region.

Conflict-wracked Mindanao has the most suitable land in the Philippines for oil palms, said Datuk Sabri Ahmad, chief executive officer of cash-rich FGV.

"We will go there for oil palms," he said here yesterday. "There is ample area for oil palms to meet strong local demand," he added.

Felda Global had a US$3.1 billion (RM9.52 billion) listing earlier this year, at the time the largest in the world after Facebook's IPO, and had said it planned to use the funds to expand in Southeast Asia and Africa.

The fighting in Mindanao has deterred any widespread foreign investment in the agriculture and mineral-rich region.

Despite the natural resources, the Philippines imports more than 500,000 tonnes of crude palm oil a year to meet strong local demand for the product, used mostly for cooking.

While Sabri did not give an estimate for how many hectares Felda Global was looking to develop, he said plantation companies would need to invest in at least 10,000ha to gain economies of scale. "We would have to look at building up the infrastructure. It will have to be a holistic approach," he said.

Mindanao has about one million hectares of grasslands, equivalent to the size of Puerto Rico, that can be turned into oil palm estates, the Philippines Palm Oil Development Council (PPDCI) has estimated.

The southern Philippines could become the next destination for land-hungry companies like Malaysia's Sime Darby and Singapore-listed Wilmar, which have struggled with environmental restrictions in top palm oil producer Indonesia and harsh weather conditions in Africa.

Bankers await details on ‘Agrosukuk’

KUALA LUMPUR: (Reuters) -- The government has launched a campaign to encourage more agricultural-sector companies to fund through Islamic bonds. The move is seen as a bid to develop the country's sukuk market and stimulate its agricultural industry.

In the 2013 Budget, tabled a couple of weeks back, Prime Minister and Finance Minister Datuk Seri Najib Razak detailed a number of steps to stimulate and strengthen the country's capital markets.

These include tax breaks, the creation of retail bonds and an additional RM400 million allocation to state-owned guarantee agency Danajamin Nasional.

It is, however, the promise of Islamic bonds from the agricultural sector that has had the markets buzzing.

Najib announced that the Securities Commission (SC) will create a framework to allow agriculture companies to issue special sukuk. Under the framework, expenses incurred in the so-called "Agrosukuk" deals will receive double tax deduction over the four tax years from 2012 to 2015.

While the idea was promising, local debt bankers said they were yet to grasp fully what it involves.

"To be frank, we are in the dark. My sense is that the SC itself has not finalised any details on this Agrosukuk and only the Islamic division at the SC seems to be aware of this new instrument," said one head of debt origination. It is at such a preliminary stage that we are surprised that the PM decided to announce it."

"The government is trying to focus on the agriculture sector, following the listing of Felda Global Ventures Holdings Bhd, but, again, the devil is in the details. How will it work?" asked one foreign banker.

Seen against the entire budget, it may make a little more sense why the agricultural sector has been singled out. For instance, RM5.8 billion is being allocated to the Ministry of Agriculture and Agro-based Industry.

Bankers, however, believe the government will need to provide more than just tax incentives to encourage these potential issuers to come to the capital markets. "The big agricultural or plantation companies, such as IOI and KL Kepong, have ready access to not only the sukuk markets, but also to bank lending," said a banker.

"However, apart from these companies, which are rated at least Double A, not many others will be able to access the markets, given investors' aversion to anything rated below that. There is a bit of disconnect there, since the tax incentive will only help the big companies. In the end, I'm not sure how it will benefit the industry as a whole," he added.

Kertih gets RM2b biotech factory

KERTIH, Terengganu: South Korea's CJ CheilJedang Corp and France's Arkema SA are investing RM2 billion on a bio-tech factory in Malaysia because of the "Petai Belalang" factor, it was revealed.

The Terengganu government has allocated 30,000ha to grow "Petai Belalang" trees so as to produce 10.5 million tonnes of wood chips annually as feedstock for the factory, a government official said.

With the addition of a convenient supply of ammonia from Petronas' refinery in Kertih and a host of other perks, this has helped to convince the two firms to embark on the fermentation venture.

"It was a case of choosing between Thailand and Malaysia," the government official noted.

Many cynical observers say profitability of the fermentation business depends on the cost of glucose, which is the main growth medium for the bacteria in the biological process.

The government official admitted there is not much sugarcane here but he highlighted there is access to the government's platform of long-term imports of raw sugar. "Also, there are other factors like a steady supply of feedstock biomass and ammonia gas from Petronas' Kertih refinery," he said.

Over the weekend, Prime Minister Datuk Seri Najib Razak officiated at the groundbreaking ceremony for the plant at the Kertih Biopolymer Park, which is poised to be the world's first bio-methionine and thiochemicals integrated facility.

Also present were Terengganu Menteri Besar Datuk Seri Ahmad Said, Arkema executive vice-president Marc Schuller, East Coast Economic Region Development Council (ECER) chief executive officer Datuk Jebasingam Issace John and Malaysian Biotechnology Corp chief executive officer Datuk Dr Mohd Nazlee Kamal.

The RM2 billion plant is expected to churn out 80,000 tonnes of bio-methionine a year from 2014. Bio-methionine is mainly used in animal feed to promote growth of poultry and livestock, shorten feeding cycle and increase the quantity of lean meat.

There is every reason for Malaysia to support this initiative, the government official said, as this is the world's first in producing animal feed additives from biological processes at competitive pricing. The biotechnology project is expected to generate accumulative gross national income of RM20.4 billion by 2020 and create 2,500 green jobs for Malaysia.

On whether bio-methionine is able to compete favourably with the performance and cost of DL-methionine made from chemical processes, the government official said: "Yes, bio-methionine is digested more efficiently by animals than DL-methionine. Also, the bio-fermentation process used by CJ CheilJedang is flexible enough to use different biomass feedstocks, such as from woodchips to oil palm empty fruit bunches."

Arkema has extensive know-how and experience in the production process of methyl mercaptan, a sulfur-based intermediate that is key to the manufacture of bio-methionine.

In an interview with Business Times, CJ CheilJedang president and chief executive officer Kim Chul Ha said the group chose to set up its plant in Terengganu as there is a secure supply of woodchips, the competitive cost of utilities, tax incentives and a good infrastructure set-up. There is also respect for private property and intellectual property rights.

The bio-methionine plant is strategic for CJ CheilJedang, Kim said, because it will be the first and only company in the world to supply customers globally with the four major amino acids - the building blocks of proteins used for animal feed - from bio-fermentation processes, including L-lysine, L-threonine, L-tryptophan, and now L-methionine.

 Arkema's Schuller said: "This joint venture enables Arkema to establish the first thiochemicals industrial facility in Asia. In the near future, we will manufacture other high value added thiochemicals in addition to methyl mercaptan."

KL Kepong expands into Papua New Guinea

KUALA LUMPUR: Ipoh-based Kuala Lumpur Kepong Bhd (KLK) is venturing into Papua New Guinea to plant oil palms.

In its filing to Bursa Malaysia yesterday, the group said it is planning to buy a company that has leasehold rights over 44,342 hectares of agriculture land there.

KLK is expected to pay US$8.7 million (or RM27 million) to Hii Eii Sing, a Malaysian national, to secure 51 per cent control of Collingwood Plantations Pte Ltd.

KLK has so far planted up around 205,000ha in Malaysia and Indonesia. The plantation business make up some 75 per cent of the group's profits.

When contacted yesterday, KLK plantations director Roy Lim Kiam Chye said: "It's a greenfield venture. If and when this deal completes in the first quarter of 2013, it'll bump up our plantation landbank by 20 per cent to around 290,000ha."

Bursa soars on govt plan to cut CPO export tax

KUALA LUMPUR: BURSA Malaysia surged to an all-time high yesterday, fuelled by fund buying of heavyweight Sime Darby Bhd and other plantation stocks after the government announced plans to cut export tax of crude palm oil (CPO) by more than half.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) advanced 11.72 points to a record high of 1,661.47.

The index moved between the 1,649.66 and 1,662.14 levels throughout the day, dealers said, adding that the solid showing was in line with steadier regional markets.

CPO prices had been on the downtrend in the last six months but in the last three weeks, it suddenly plunged. 

Three days ago, palm oil suffered its biggest loss in nearly three years. It tumbled 9 per cent to RM2,255 per tonne – its steepest daily drop since the 2008 financial crisis.

But since news reports of possible lowering of CPO tax surfaced two days ago, palm oil prices had started to climb a little.

Yesterday, the third-month benchmark crude palm oil futures traded RM1 higher to close at RM2,352 per tonne. Volume totalled 16,317 lots, higher than the usual 12,500 as some traders took up positions ahead of positive news from the government.

Over at the equities market, plantation stocks like Sime Darby, Kuala Lumpur Kepong Bhd and United Plantations Bhd were among top 10 gainers yesterday.

When met at the opening of the Malaysian Timber Council Global Woodmart here yesterday, Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said he prefers the proposal to take effect as soon as possible but it is for the Cabinet to decide. 

"We want to reduce stockpiles. The lowering of the CPO tax, if approved by the Cabinet, will help boost CPO exports. Hopefully, this will help stabilise falling prices," he said.

Oil palm planters, while admitting the lowering of the 23 per cent CPO tax will allow refiners be more competitive, said a more practical rate is between 4 and 5 per cent.

“The proposed rate of between 8 to 10 per cent is still prohibitive. If the CPO tax rate is lowered to between 4 and 5 per cent, it is still bearable for planters,” a Sabah-based planter grudgingly said.

“Over here, we’ve to sell our fruits at huge discounts to millers compared to planters in Peninsular Malaysia. Apart from paying corporate tax to the federal government, we also have to pay sales tax to the Sabah government,” he told Business Times via phone interview.

Separately, an oil palm planter in the Peninsular concurred that the lowering of CPO tax to between 4 and 5 per cent is a more realistic option.

“The proposed reduction in CPO tax to between 8per cent and 10 per cent is still too prohibitive. At between 4 and 5 per cent, the problem can be realistically tackled in two prongs. First, producers can still bear the burden and second, it’ll facilitate some CPO exports,” he said.

"These are short-term solutions as longer term excess refining capacity in Indonesia will reduce their competitiveness," he added.

Currently, oil palm planters in the Peninsular pay windfall tax when CPO price exceeds RM2,500 per tonne in the cash market. Planters in Sabah and Sarawak pay that tax when the price surpasses RM3,000 per tonne.

The planter suggests that the government abolish the current punitive windfall tax and have the proceeds of the CPO tax to subsidise cooking oil instead.

Malaysia to slash CPO export tax

This is written by OOI TEE CHING and ZAIDI ISHAM ISMAIL.

Bangi, Selangor: THE government plans to slash crude palm oil (CPO) tax to match the margin between crude and refined oil with that of Indonesia so that refiners here are better able to compete with rivals there.

Indonesia and Malaysia are the world's top two CPO producers respectively.

Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said he will present to the Cabinet a proposal tomorrow to lower the CPO export tax to between eight and 10 per cent from the current 23 per cent.

"I think this will put us in a very much competitive position as the margin between crude and refined (palm oil) will match the 13.5 per cent tax gap in Indonesia," he said at the ministry's get-together with the media here yesterday.

In the last three weeks, CPO prices had plunged to below RM2,300 a tonne, its lowest in a year. 

To stem falling prices, Dompok said the reduction of the CPO tax should make it easier for refiners in Malaysia to become more competitive in the market. 

When the tax gap between crude and refined palm oil in Malaysia matches that of Indonesia, refiners here would stand a better chance to buy up more of the commodity and reduce the current high stock levels in the country.

As refining activities pick up, players would be able to reap economies of scale and make some money to stay in the business.

The minister also noted that for this move to be effective, there has to be curbing exports of duty-free CPO as well. "Out of the quota of five million tonnes of duty free CPO we've allowed to be exported, only half has been utilised. I want the companies which have not used up their quotas to surrender back the approved permits," he added.

RM815m green loans approved

KUALA LUMPUR: MORE than RM800 million worth of green loans have been approved by banks and, of that figure, RM250 million has already been disbursed, says Energy, Green Technology and Water Minister Datuk Peter Chin Fah Kui. 

"After a series of dialogue with Bank Negara and my agencies, bankers are becoming more familiar and comfortable about funding green businesses," he said. "Banks are approving green loans a lot faster, from over a year to two months," he added.

Chin said the recently-announced 2013 Budget has raised the target of the Green Technology Financing Scheme by another RM2 billion to RM3.5 billion. 

"The implementation deadline has also been extended until the end of 2015," he said.

The Green Technology Financing Scheme, established two years ago, seeks to encourage supply and usage of green technologies. 

The scheme benefits companies which are producers (up to RM50 million for 15 years) and users (up to RM10 million for 10 years) of green technologies.

Under the scheme, the government bears 2 per cent of the total interest/profit rate and guarantee 60 per cent of the green loan via Credit Guarantee Corporation Malaysia Bhd, with the remaining 40 per cent financing risk borne by banks.

The minister was speaking to reporters at the media sneak preview of the International Greentech and Eco Products Exhibition and Conference Malaysia (iGEM) 2012 here yesterday. The iGEM 2012 will be held on October 10 and 11 at the Kuala Lumpur Convention Centre.

Also present at the event was Malaysian Green Technology Corp acting chief executive officer Ahmad Zairin Ismail. He said 20 banks have approved green loans amounting to RM815 million to 67 projects ranging from renewable energy, industrial waste water recycling and production of bio-plastics.

"Out of the 67, eight projects are related to the oil palm industry where palm oil millers put up biomass and biogas plants to generate renewable energy," he added.