Brighter future for oleochemicals

Malaysia's oleochemical producers have suffered unfair competition when Indonesia restructured its palm oil taxes to woo downstream investments to its shores. But as Malaysia is set to change its tax structure from January 2013, local producers now see brighter days ahead, writes OOI TEE CHING. 

When Indonesia changed its palm oil tax structure in October 2011, oleochemical producers in the country gained access to cheaper feedstocks. 

On the flipside, the refining community in Malaysia suffered when they found it difficult to source for affordable feedstocks. Price cutting ensued as refiners, oleochemical, specialty chemical, specialty fats and biodiesel producers here fight for their survival.

"Despite the creation of unlevel playing field for more than a year, manufacturers here somehow managed to chalk up more exports," said Malaysian Oleochemical Manufacturers' Group (MOMG) chairman Tan Kean Hua. 

He said as palm oil futures fell from a high of RM3,600 in April 2012 to RM2,400 currently, it became easier to export oleochemicals. 

"We shipped out more volume, albeit at lower pricing, especially in the second half of this year," he said in an interview in Kuala Lumpur.

Yesterday, the third-month benchmark palm oil futures on the Malaysia Derivatives Exchange traded RM23 higher to close at RM2,431 per tonne.

According to the Malaysian Palm Oil Board, the country exported RM10.64 billion worth of oleochemicals in the first 11 months of this year.

Asked if oleochemical exports are going to hit a record high this year, he said: "We'll definitely surpass the RM11.5 billion mark by the end of the year."

It has taken more than a year for Malaysia to change its palm oil tariffs, in response to Indonesia's tax cut. Effective January 1 2013, Malaysia will lower crude palm oil (CPO) tax from 23 per cent to stagger at between 4.5 per cent and 8.5 per cent. 

If palm oil prices hover between RM2,250 and RM2,400 a tonne, the tax is 4.5 per cent. And if the prices were to jump to RM3,450 per tonne, the tax is 8.5 per cent. Exports of duty-free CPO will also be prohibited. 

If the government had responded earlier with the tax restructure, would Malaysia's oleochemical exports have been even higher? Tan pursed his lips and tactfully replied: "Let's not look into the past." 

"With the new palm oil tax structure coming into place, there's more certainty on the horizon. Apart from CPO, refiners also produce stearin, another feedstock variant that is critical to our members. When refiners produce more of such feedstocks, our members are able to churn out more fatty acids, soap noodles, esters and glycerine," he added.

MOMG members churn out 25 per cent of the world's 10 million tonnes of oleochemical demand. There are 18 oleochemical producers in Malaysia with a combined annual capacity of 2.6 million tonnes. 

After almost two decades, Malaysia is still the world's oleochemical hub. This pole position stems from the community of its process engineers and chemists' expertise to fine-tune ways to turn palm oil and palm kernel oil into more than 100 types of downstream products.

The three oleochemical giants in Malaysia, namely IOI Oleo Group, KLK Oleo Group and Emery Oleochemicals (M) Sdn Bhd, had recently taken to invest further downstream to make more profitable specialty chemicals. 

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.

KLK Oleo Group reported that it is spending in excess of RM600 million to build an integrated methyl ester sulphonate and fatty alcohol plant in Shah Alam and a specialty fatty ester facility in Klang.

Emery Oleochemicals is pumping more than RM400 million into its Telok Panglima Garang facilities to produce biolubricants, green polymer additives and surfactants. 

Apart from the three giants, ICM Specialty Chemicals Sdn Bhd is also investing RM130 million to put up a specialty ester plant in Pulau Indah, Klang. A 55:45 joint venture between Chemical Mate Technologies Sdn Bhd and Italy's Societa Chimica Lombarda Pte Ltd, ICM's plant is scheduled to start operations by mid-2014.

In a separate interview, ICM managing director Kenneth Chang Boon Kit expressed the need for a closer public-private collaboration. 

He envisions the government setting up a dedicated platform for institutions of higher learning and technical colleges to work more closely with the chemical industry. This way, academicians can update and fine-tune their research and syllabus to that of manufacturers' needs.

"By pooling our resources together, Malaysia will be able to sustain a critical pool of chemists to work on product development and engineers to design better processing plants," he said.