Archive for 2013

Oleochem exports to grow 20pc

KUALA LUMPUR: Malaysia's oleochemical exports are expected to expand by 20 per cent to 2.7 million tonnes, thanks to manufacturers’ efforts in upgrading their fatty acids and fatty alcohol throughput.

“We’ve been churning out 2.2 million tonnes per year since 2009. But this year, we think we can breach 2.7 million tonnes,” said Malaysian Oleochemical Manufacturers Group president Tan Kean Hua.

“Since the change in the CPO (crude palm oil) tax structure this year, it has somewhat levelled the playing field and allowed our exports to be more competitive. 

"We’re now shipping out more in volume,” he told Business Times here recently.

According to the Malaysian Palm Oil Board, the country exported RM8.5 billion worth of oleochemicals in the first 11 months of the year. 

“I think we’ll be able to do around RM9 billion this year. The export value is expected to be 20 per cent lower than last year’s record high of RM11.5 billion because of lower crude palm oil and crude palm kernel oil prices,” Tan said.

Asked if the lower oleochemical export value forecast is a cause for concern, he replied: “We are a cost-plus business and oleochemicals are a necessity. They are present in the household cleaning products, toiletries, cosmetics and industrial and pharmaceutical items we use everyday.”

The industry remains optimistic of prospects in the years ahead. Since 2010, the government had been calling on the palm oil industry to move up the value chain under the Economic Transformation Programme.

In accepting this challenge, Tan said, major oleochemical manufacturers had started to debottleneck and upgrade their fatty acids and fatty alcohol throughput to leverage on economies of scale.

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

Meanwhile, KLK Oleo Group’s near RM700 million investment in an integrated methyl ester sulphonate and fatty alcohol plant in Shah Alam and a specialty fatty ester facility in Klang are scheduled to go into commercial operations next year.

Emery Oleochemicals’ RM400 million top-up investment at its Telok Panglima Garang facilities to produce biolubricants, green polymer additives and surfactants will soon contribute to the group’s bottom line.

Turkey-based Evyap Sabun reportedly said it is investing RM500 million in a 400,000 tonne-a-year oleochemical plant at Pasir Gudang, Johor. “Evyap’s investment is the first greenfield basic oleochemical investment in Malaysia in more than two decades. As for IOI Oleo, KLK Oleo and Emery, the expansion works are at various stages of completion,” Tan said.

Smaller entities that are investing further downstream to make more specialty chemicals include ICM Specialty Chemicals, Carotino, UniOleon and Ancom Crop Care.

US may buy more Malaysian palm oil

PETALING JAYA: The United States may buy more palm oil from Malaysia, now that the Food and Drug Administration (FDA) has
dropped trans fats’ “Generally Recognised as Safe” (GRAS) status.

Last month, US FDA Commissioner Margaret Hamburg reportedly said her agency had preliminarily determined that partially hydrogenated oils, a major source of trans fats in processed foods, are not generally recognised as safe for food. 

Trans fats have been linked to an increased risk of coronary heart diseases, in which plaque builds up inside the arteries and may cause a heart attack. She called the agency’s announcement “a critical step in the protection of Americans’ health”. 

Traditionally, food companies add hydrogen gas to soft oils, in a process called hydrogenation, to make them more solid or spreadable, prolong shelf-life and maintain flavour stability. But, the side effect of this process is trans fats. 

“Since palm oil is naturally semi-solid at room temperature, it is an ideal substitute for trans fats. 

"We expect food companies in the US to place more orders for palm oil, a heart healthy and yet versatile food ingredient,” said Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad. 

Currently, the US buys around a million tonnes of palm oil from Malaysia. Since 2006, the FDA has passed a compulsory ruling on trans fats labelling. This prompted the food companies there to turn to palm oil to phase trans fats out of their products. 

“The latest FDA ruling bodes well for palm oil exporters. We estimate a possible upsurge of up to 200,000 tonnes of palm oil shipment from Malaysia to the US,” he told Business Times, here, recently. 

Meanwhile, on policy development in the EU, Jaaffar noted that starting next year, Malaysia and Indonesia will be competing on a level playing field when exporting palm oil, oleochemicals and biodiesel to the continent. 

"Starting next month, oleochemical and biodiesel shipments from both Malaysia and Indonesia will be subjected to the usual import tax when they reach EU shores. "These are items categorised under Chapters 34 and 38," he said. 

Earlier this year, there was confusion as to whether Malaysia may be getting the short end of the stick since next year onwards, it will graduate from the Generalised System of Preferences (GSP) status with the EU with regard to Chapters 34 and 38. 

Jaaffar said Malaysia began to graduate from GSP status back in 1999. It started with Chapter 15, which listed crude palm oil, crude palm kernel oil and all refined palm oil. 

"Since then, we've been paying the usual import duties on shipment of products listed under Chapter 15 to the EU," he said. "All the while, Indonesia had been enjoying GSP status with the EU. But starting 2014, Indonesia will graduate from Chapters 15, 34 and 38, too." 

‘Havoc for palm oil sector’

PETALING JAYA: Palm oil refiners, some of which are owned by the country’s largest conglomerates, may face a bleak future if Malaysia accedes to demand under free trade pacts to dismantle the crude palm oil (CPO) tax.

Among the free trade agreements that Malaysia is negotiating are the Trans-Pacific Partnership (TPP) agreement and European Union Free Trade Agreement (EU FTA), say refiners.

In an interview with Business Times recently, Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad said: “If our government were to dismantle the CPO tax as usually prescribed under free trade agreement negotiations, it will spell suicide for palm oil refiners here. It will cause havoc throughout the palm oil supply chain.

“The International Trade and Industry Ministry (Miti) needs to be more discerning. In negotiating for better market access into the United States and EU, it must not be hoodwinked into killing palm oil refiners here.

“If the government dismantles the CPO tax, it will sabotage the initiative to attract investments to add value to the palm oil supply chain,” he added.

The CPO export duty structure fluctuates on a monthly basis at between 4.5 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. If the prices are between RM2,550 and RM2,700 a tonne, planters will be taxed 5.5 per cent. Exports of refined palm oil, however, are not taxed.

Last year, the Plantation Industry and Commodities Ministry, in wanting to reduce high stockpiles, waived export duties on five million tonnes of CPO. The decision, however, created a loophole and led to a partially duty-free environment.

Jaaffar said five million tonnes of duty-free CPO amounted to 27 per cent of 2012’s production. As a result of that policy move, it worsened the already lopsided trading environment, which was favouring Indonesia then. Local palm oil refiners thus suffered a double whammy.

Apart from Singapore and Japanese investors, Poram members include Felda Global Ventures Holding Bhd, IOI Corp Bhd, Sime Darby Bhd, Kuala Lumpur Kepong Bhd, and Sarawak Oil Palms Bhd.

The TPP is a multilateral deal of which the US — the lead negotiator — aims for more trade flows with Malaysia, Australia, Brunei, Canada, Chile, Mexico, New Zealand, Peru, Singapore, Vietnam and Japan.

“If you draw from the US’ free trade agreement with Peru, Malaysia may be told to dismantle the CPO export duty, as what the US had required of Peru,” Jaaffar said. “If our government agrees to this, Malaysia will regress from a value-adding industrial economy to that of a simple commodity exporter.”

More calls to stop windfall levy

CAP ON POTENTIAL GAINS: Oil palm planters face double taxation when CPO prices climb above RM2,500 per tonne

KUALA LUMPUR: AS crude palm oil (CPO) prices firm up, oil palm planters renew their appeals to the government to abolish the windfall tax.

Yesterday, the third-month benchmark palm oil futures on Bursa Malaysia Derivatives Market closed at RM2,554 per tonne.

"In the last seven weeks, CPO prices have climbed past RM2,500 per tonne. Although this sounds like good news, it's actually very painful for oil palm planters. 

"We face double taxation; one is the CPO tax and the other is the windfall levy," said Malaysian Palm Oil Association (MPOA) chief executive Datuk Dr Makhdzir Mardan.

He said oil palm planters in Peninsular Malaysia pay the windfall levy when palm oil prices go beyond RM2,500 per tonne in the cash market. Planters in Sabah and Sarawak, however, pay this levy if the price crosses RM3,000 per tonne.

"Since the government restructured the CPO tax this year, it should have also done away with the windfall profit levy," Makhdzir told Business Times here recently.

"Planters are having a tough time with less profits following labour shortage and the implementation of the minimum wage policy. Low CPO prices throughout 10 months of the year have shaved off profits of plantation companies by as much as 30 per cent and this has affected return on investments to shareholders." 

The windfall levy indirectly caps potential gains in palm oil prices. Makhdzir explained that when palm oil is slapped with the levy, it gives the perception that the food item is overpriced and triggers a psychological reaction among buyers in China, India, the United States and Europe to slow down their orders.

"The government may collect millions of ringgit in windfall levy but unfortunately, this move also denies the opportunity in garnering billions of ringgit in export earnings for the country." 

Oil palm planting is a capital-intensive activity. Every year, planters have to chop down old and unproductive trees and replace them with higher yielding seedlings. Planters, particularly smallholders, need to re-invest their profits to raise productivity at their fields. "How are they going to carry this out effectively when they have to pay more taxes in the form of windfall levy?" Makhdzir asked.

Two months ago, the Malaysian Estate Owners Association (MEOA) reiterated its long-drawn appeal to the government to abolish the windfall tax as it deters re-investments.

MEOA president Boon Weng Siew had reportedly said when CPO trades above RM2,250 a tonne, planters pay a 4.5 per cent export duty and when the price rises above RM2,500, planters have to pay a 5.5 per cent export duty as well as windfall tax. 

"This double taxation is punitive to oil palm planters in Peninsular Malaysia."

According to the Malaysian Palm Oil Board, Malaysia produced 17.55 million tonnes of CPO in the first 11 months of this year.

In the last three weeks, floods in the east coast of Peninsular Malaysia disrupted the harvesting of oil palm fruits and the transport of palm oil to refineries and seaports. In view of the supply disruption, market punters are betting that CPO prices will continue to trade above RM2,500 a tonne in the weeks ahead.

Commenting on the impact of the flood on the country's CPO output for the year, Makhdzir said: "Now that the floods have somewhat subsided, I think the overall impact is not too severe. We should still be able to squeeze out 19 million tonnes of CPO for the full year."

Lee increases shareholding in IOI

This is written by my editor Francis Fernandez.

KUALA LUMPUR: Tan Sri Lee Shin Cheng has strengthened his hold on IOI Corp Bhd as the company zeroes in on acquisitions to beef up growth.

Parties directly related to Lee bought the company’s shares for between RM5.76 and RM5.79 a piece from the open market, filings to the stock market show.

Lee, said to be worth US$4.5 billion (RM14.5 billion), saw his family members spend slightly more than RM25 million within two days (December 11 and 12) to acquire around five million IOI shares.

IOI shares, up some two per cent this month, rose to RM5.87 each, before ending at RM5.78.

The purchases helped the country’s sixth richest man, according to Forbes Magazine, increase his indirect shareholding in IOI to 45.32 per cent.

The 74-year-old Lee has a direct 1.04 per cent stake in IOI, the country’s fourth largest plantation company.

The Lee family was not the only ones buying IOI shares in a big way. A quick check on Bursa Malaysia’s website shows that the Employees Provident Fund (EPF) also bought some 1.44 million IOI shares on December 11. With the purchase, the EPF now owns some 9.2 per cent of the company.

Purchases by IOI’s two biggest shareholders come at a time when analysts expect crude palm oil (CPO) to fetch a better price next year.

Last Thursday, Alliance raised IOI’s financial year 2014-2016 earnings outlook by 6.4 per cent and 7.1 per cent, respectively, to reflect an upward revision of CPO average selling price from RM2,400 a tonne to RM2,575-RM2,600 a tonne for the respective years.

Meanwhile, on the acquisition of oil palm estates, IOI told the stock exchange that it now owns some 94.79 per cent of Unico-Desa Plantations Bhd. The whole Unico Desa takeover is valued at RM606 million. 

KL is world's palm oil price hub

TIGHT CORRELATION: Vegetable oil traders all over the world look to Bursa Malaysia as the global reference for palm oil prices. Refiners tell OOI TEE CHING how palm oil price movement at Bursa Malaysia Derivatives Exchange influence the commodity exports.

IT'S lunch time. The palm oil futures market takes a breather from trade before it re-opens at 3pm.

Bursa Malaysia Derivatives Bhd chief executive officer Chong Kim Seng points to his handphone and notes that one can conveniently access palm oil futures prices on the exchange real time.

"Whether you're in Malaysia or in the United States, India, China or Africa, palm oil prices are quoted out from here, Kuala Lumpur. This is where the buying and selling of crude palm oil futures takes place," he said.

Although there are many markets around the world facilitating palm oil trading, vegetable oil traders and commodity analysts look to Bursa Malaysia as the global hub for price reference.

Back in the 1970s, tin and rubber prices used to be quoted out of Kuala Lumpur. As time went by, however, trading of these commodities became more active and visible in other markets. 

Hence, today, tin prices are quoted out of the London Metal Exchange while rubber prices are directly reported from the Tokyo Commodity Exchange.

This development suggests a shift of commodity trading significance from producer to consuming countries. One may argue that palm oil trade may face the same fate as tin and rubber. Bursa Malaysia may lose its global palm oil price lead to more active futures markets like China's Dalian Commodity Exchange.

Many vegetable oil traders have highlighted that current palm oil trades at the Dalian Commodity Exchange is many times more than the average daily volume settled at Bursa Malaysia Derivatives Exchange. Indeed, Malaysia is no longer the world's biggest palm oil producer nor home to the world's largest market for palm oil derivatives.

When asked what makes Bursa Malaysia the global reference for palm oil price benchmarking, Chong said it all boils down to the exchange's role in maintaining a transparent, efficient and convenient trading environment for market participants, whether they are traders, bankers or speculators.

"We consistently enforce rules to ensure that trading takes place in an open and competitive environment," he said.

"We also promote efficient price dissemination so that businesses in the palm oil value chain, both upstream and downstream, can better benchmark their risks," he added.

Meanwhile, the third month benchmark palm oil futures closed at RM2,613 per tonne yesterday. It has been on an uptrend in the last five weeks. 

As futures prices climbed, palm oil prices in the physical market rose too. In explaining the tight correlation between the two markets, Chong said "there's continuous interplay of price movements between the two markets". 

"This is because the futures market allows for price risk encountered in the physical market to be transferred to other parties more willing to assume the price risks," he added.

Similarly, in taking the cue from price rises in the futures market, plantation counters on the equity market like IOI Corp Bhd, Sime Darby Bhd, Felda Global Ventures Holdings Bhd, Kuala Lumpur Kepong Bhd and Genting Plantations Bhd had seen their share prices go up.

Palm oil refiners benchmark the price of their shipments against that quoted out from Bursa Malaysia at any given time. As the price goes up, so does the value of palm oil exports.

In a separate interview, Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad concurred that the country's palm oil exports are very much influenced by pricing.

In the first 11 months of this year, Malaysia exported RM55.88 billion worth of palm oil products. It is estimated that this number should cross the RM60 billion-mark at the end of the year.

Last year, palm oil shipment totalled RM71.45 billion.

"In the first 11 months of this year, palm oil averaged at RM2,352 per tonne. This is much lower than last year's average of RM2,764 per tonne. The higher the palm oil price, the higher our palm oil exports," he said.

Malaysia produces some 19 million tonnes of palm oil a year, of which about 18 million tonnes are shipped out of the country in the form of cooking oil, margarine, oleochemicals, animal feed and biofuel.

Bursa Malaysia's palm oil futures market value adds to this as Chong noted that this year the exchange is expected to settle around eight million palm oil contracts.

"In the last five years, the palm oil trading volume on the futures market has doubled. Back in 2009, it was only four million contracts. This year, we're expected to surpass eight million contracts. Each contract is 25 tonnes. So, that works out to 200 million tonnes of palm oil settling at the futures market this year," he said.

"If Malaysia only has the physical market, we would only be trading around 19 million tonnes of palm oil. But with Bursa Malaysia's futures market, we can trade up to 10 times that of the physical market," he added.

MPOB leverage on green, gene technologies

KUALA LUMPUR: MALAYSIAN Palm Oil Board (MPOB) plans to leverage on green and gene technologies to achieve increased profit, environmental stewardship and social responsibility.

"The application of gene technologies in the study of oil palm breeding materials will lead to the identification of genes and accelerate the development of elite planting materials," said MPOB director-general Datuk Dr Choo Yuen May.

"The genome contains the genetic blueprint for life and encodes the entire set of genes responsible for each and every trait," Choo said in her plenary presentation at the recent MPOB International Palm Oil Congress (Pipoc) here yesterday.

Her presentation focused on MPOB's genome research breakthrough and the discovery of its practical application, the SureSawit Shell Kit, which enables oil palm growers to identify their shell type with 100 per cent accuracy.

With conventional breeding, scientists must wait until they can measure the trait in mature trees before selecting high-performing individuals for the next breeding cycle, she said.

"But knowing which gene controls a desired trait, however, enables the selection of elite materials at the nursery stage through marker-assisted breeding, and it saves time, too.

"Genomics applied to oil palm will play a significant role in yield improvement, food security, the reduction of the rainforest footprint and serve as an indispensable tool for breeding," she explained.

Choo said by 2050, when the world population has grown by a projected two billion to 9.1 billion, it will require a significant increase in food production over current levels. In the near future, exporting nations must significantly increase their production and exports.

Another concern is the increase in greenhouse gas (GHG) emissions resulting from the population growth and the reliance on fossil fuels.

"There is an urgent need for renewable fuels that can provide a sustainable solution to the world's energy needs. Oil palm, properly managed, is an eco-friendly feedstock for biofuel," she said.

Palm oil is the leading source of vegetable oils and the best candidate for meeting the world's increasing need for food and renewable fuel as it yields 10 times more oil than soya bean, its closest competitor. 

"Oil palm is planted on only five per cent of land occupied by oil crops and yet it contributes to about 43 per cent of the world's edible oils," she said.

Fry: CPO prices may hit RM2,750

KUALA LUMPUR: Crude palm oil (CPO) prices are expected to trade as high as RM2,750 a tonne early next year due to more palm oil-based biodiesel use, said LMC International Ltd chairman Dr James Fry.

"The price gap between crude petroleum and CPO favours more consumption of palm biodiesel," he told the 1,000 delegates at Malaysian Palm Oil Board's (MPOB) International Palm Oil Congress (PIPOC) 2013, here, yesterday. 

Since production of palm biodiesel is profitable, oil companies in Indonesia and Malaysia have started to mop up CPO from the market to blend with regular diesel. 

MPOB data shows that for the first 10 months of this year, biodiesel exports rose sevenfold to 140,676 tonnes from the same period a year ago. 

Fry reiterated his long-held view that palm oil prices would continue to be highly influenced by petroleum prices. 

Yesterday, Brent North Sea crude oil for January rose 18 cents to US$108.24 a barrel. At the same time, the third-month benchmark palm oil futures on the Malaysian Derivatives Market went up RM73 to close at RM2,653 per tonne.

"If Brent crude continues to trade at the current level, I don't see wildly exciting changes in CPO prices. It may well rise in the months ahead to RM2,750 a tonne," Fry said. 

On the prospects of CPO prices surpassing the RM3,000 a tonne-level, Fry replied: "Do bear in mind that there's a limiting factor as there's a major recovery in the supply of soft oils, like sunflower and rapeseed." 

MPOB senior research officer Ramli Abdullah, in his presentation, said Malaysia's CPO production is likely to expand two per cent to 19.1 million tonnes this year. 

"This is on the assumption of normal weather conditions, increased new plantings and more trees maturing and bearing more fruits," he added. 

More specialty oleochemicals in the pipeline

BEING RELEVANT: It's not always the biggest nor the one with the deepest pocket that succeeds. Very often, those that adapt rapidly to changing business environment are the ones with staying power. Ooi Tee Ching writes on the industry’s specialty oleochemicals initiative.

AT FIRST GLANCE, Matrix Oleochem Sdn Bhd may seem like any other ordinary company. But if you look a little closer, you'll realise it is the only standalone specialty oleochemical player in Malaysia that is thriving on product innovation.

Founded by chemist Dr Tan Chee Hong 17 years ago, Matrix Oleochem is currently Malaysia's biggest exporter of coco diethanolamide, an ingredient that is predominantly used as a thickening and foaming agent in shampoos, dish washing liquid and fabric softeners.

Matrix also makes another popular ingredient called cocoamido propyl betaine. This is widely used in the "no more tears" range of shower creams and shampoos for children.

Last year, the company exported 7,000 tonnes of specialty oleochemicals. "I think we should be able to export 40 per cent more this year," he said.

In differentiating itself from the more well-known giants like IOI Oleo Group, KLK Oleo Group and Emery Oleochemicals (M) Sdn Bhd, Tan said, "I sell tubfuls of specialty chemicals while others sell truckloads of basic oleochemicals".

"I make do with what I have. I don't have deep pockets or financial backing from plantation giants but what I possess is talent and knowledge. I'm fortunate that the time and effort I've invested in making specialty chemicals is delivering good profit margins," he added.

Businesses that are positioned higher up the palm oil value chain, like Matrix Oleochem, are essentially more service-oriented. 

Tan noted that when it comes to specialty oleochemicals, customers are not necessarily going to buy whatever products that are pushed to them. "They'll want to see what the products can do for them. Ultimately, consumers will spend money for a more convenient or comfortable lifestyle," Tan said. 

Indeed, there is an advertising axiom that illustrates this point succinctly: People don't necessarily want a bar of soap all the time. What they want is clean hands. 

Therefore, manufacturers like Matrix should be able to offer more choices. The use of its ingredients should be versatile and can be incorporated in liquid handwash, hand sanitisers or even clean wipes.

"Customer needs and market trends are always changing. We need to remind ourselves that whatever we offered five years ago may not be relevant a year from now," he said. "So, we really have to listen and customise accordingly."

Tan's business has thrived in leaps and bounds because he has always focused on product innovation and development of niche markets. "We've never competed head-on with the big players. In fact, we complement their businesses because they are suppliers of basic ingredients," he said.

Recently, Italy's Societa Chimica Lombarda Pte Ltd (also known as the Erca Group) decided to partner its chemical distributor Chemical Mate Technologies Sdn Bhd to manufacture specialty chemicals in Malaysia. Their 55:45 joint venture, called ICM Specialty Chemicals Sdn Bhd, is investing RM130 million to put up a specialty ester plant in Pulau Indah, Klang.

ICM managing director Kenneth Chang Boon Kit noted that Chemical Mate, established in 1995, has been distributing specialty oleochemicals. 

"We've been doing business with Erca Group, which is owned by the Seccomandi family for some time. As time goes by, they see a need to expand their chemical making business in Asia. So, it's only natural that our distribution partnership is now strengthened to include that of manufacturing specialty oleochemicals," he said.

Chang concurred with Tan that the rising disposable income in Asia is fuelling demand for more varieties of toiletries, detergents and even industrial cleaning chemicals.

"Twenty years ago, an average household in Asia might be satisfied with just a bar of soap. Now, there's a wide range of haircare, skincare and even nail care products. This fuels the demand for more natural, halal, easily biodegradable and renewable ingredients such as palm-based oleochemicals," he said.

Currently, Malaysia has 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 sold to specialty chemical manufacturers like Matrix Oleochem and Erca Group which then process them further and formulate them into toothpaste, soap, dishwashing liquid, laundry detergent, industrial lubricants and even food emulsifiers.

Since 2010, the government had called on the palm oil industry to move up the value chain under the Economic Transformation Programme.

In a separate interview, the Prime Minister's Department's Performance Management & Delivery Unit (Pemandu) director for Palm Oil & Rubber NKEA & ETP Investment Ku Kok Peng noted that in heeding the government's call to add value to the oleochemical industry, the three giants, namely IOI Oleo Group, KLK Oleo Group and Emery Oleochemicals (M) Sdn Bhd, are investing further downstream to make more specialty chemicals. 

Smaller entities include ICM Specialty Chemicals, Carotino, UniOleon and Ancom Crop Care.

Ku said the government's role is to be an enabler to drive the industry to be more competitive. "We're focusing on high-impact areas and the manufacture of specialty oleochemicals is one of them."

Ku revealed that to date, the palm oil industry has committed RM1.36 billion investment in making more specialty oleochemicals. 

Of that total, the government, through the Malaysian Palm Oil Board, has committed RM223 million to incentivise this initiative to fruition.

To a query if Matrix feels threathened by the big boys' move into specialty oleochemicals, Tan gave a wry smile and replied, "Innovation is finding a new use for the same product. We've diversified from detergent and personal care sector to include the construction industry."

ICM's Chang alluded that the market pie is growing. "It's not like we're competing head-on with other players because all of us have our niche clients. Our partner Erca Group has decades of experience in the synthesis of personal care and cosmetics formulations."

CPO price trending up

KUALA LUMPUR: CRUDE palm oil (CPO) price is expected to strengthen to RM2,600 per tonne in the next three months, Deputy Prime Minister Tan Sri Muhyiddin Yassin said.

CPO price stood at an average RM2,555 per tonne in the first 17 days of the month. 

Muhyiddin said there has been an increase in CPO price from RM2,221 in January to RM2,328 last month.

"CPO price is on a rising trend, and we hope it will continue to next year," he said at a press conference after launching the Malaysian Palm Oil Board's International Palm Oil Congress 2013 (PIPOC) yesterday.

In his keynote address, Muhyiddin urged industry players to generate growth in downstream activities, particularly in the food and health products as well as commercialisation of second-generation biofuels.

He said the government has undertaken efforts to ensure that CPO remains available to domestic industries to develop downstream activities and create value-added palm products.

"However, the expansion of our downstream activities has not occurred at a level envisaged by the government. 

"I am hopeful that industries present here today will consider reinvesting in downstream activities that value-add our palm oil sector."

Malaysia and Indonesia are currently at the forefront of global palm oil production and exports. Last year, Malaysia's export of palm oil amounted to RM73.3 billion.

Despite being a key contributor to the country's economy, the palm oil industry continues to be hurled with criticisms from various parties abroad.

Muhyiddin said last year, for example, some French members of parliament proposed a Bill to increase the tax on palm oil from 100 (RM430) to 300 per tonne.

However, due to the farsightedness of the French government, the unsubstantiated proposal was rejected, he said.

He hopes that the ongoing free trade talks between Malaysia and the European Union will result in a more equitab;e solution.

"I am hopeful that government officials from both sides will work towards a trade-friendly solution to address the negative perceptions surrounding palm oil, on matters related to sustainability as well as nutritional claims," he said.

The three-day PIPOC attracted 2,000 participants from 45 countries. It also features a trade exhibition with more than 270 booths displaying current technologies, state-of-the-art equipment and products related to the oil and fats industry.


Africa is growth catalyst for oil palms

KUALA LUMPUR: Oil palm planting can play a vital role in West Africa's future as it has in Southeast Asia's economic rise, Malaysian Palm Oil Council chief executive officer Tan Sri Yusof Basiron said.

"The African continent is expected to more than double its population by 2030 ... if the world is going to address the growing issue of food security, a strategic move would be to plant more efficient oil crops like oil palm," he told an international audience of some 1,000 at the Malaysian Palm Oil Board's International Palm Oil Congress (PIPOC) 2013 here yesterday.

Yusof said United Nations' Food & Agriculture Organisation had, time and again, issued reports that nearly a quarter of the world's population live on less than US$2.00 a day and that one in eight people, particularly those living in developing nations, go to bed hungry.

Palm oil is the powerhouse in the oils and fats market and is a suitable crop for farmers in tropical developing countries. The oil palm is native to the continent and thrives in West Africa's moist climate. It is a high-calorie, nutritious product that will be a key component of any anti-hunger effort.

The yield from oil palms is seven times higher than rapeseeds a hectare and 10 times that of soyabeans.

Currently, oil palms are cultivated in Southeast Asia, Papua New Guinea, Central and West Africa and Latin America, all of which are developing countries in the humid tropics. The trees are planted by some 10 million farmers across the equatorial belt. 

At the same time, it feeds billions of people in China, India and other developing nations.

Yusof also highlighted some of the benefits of agriculture-led development that can accrue to smallholders in West Africa. He said Malaysia set the global standard in this area when it implemented its innovative Federal Land Development Authority (Felda) programme to ensure that smallholders share equitably in the rising prosperity that comes with plantation agriculture.

This path-breaking Malaysian programme has inspired Liberia's Outgrowers Scheme undertaken by Sime Darby Bhd, an effort to support Liberia's small farmers.

"Palm oil is a major revenue earner for Malaysia. It can provide sustainable and green opportunities for other developing countries," Yusof said.

He went on to highlight that the insight, technology and hard-won business savviness of Malaysian palm oil investors will help kick-start West Africa's nascent palm oil industry.

"Palm oil production respects and adopts the three principles of sustainability - people, planet and profits. Investment in oil palm cultivation must continue because palm oil addresses food security and the need for trans fat free food items at affordable pricing," he said.

KLK makes foray into Liberia

KUALA LUMPUR: Kuala Lumpur Kepong Bhd (KLK), one of Malaysia's top five plantation companies, will venture into Liberia to expand its oil palm land beyond Malaysia, Indonesia and Papua New Guinea.

KLK, yesterday, said it had sealed a cash deal with Singapore's Biopalm Energy Ltd to buy a 50 per cent stake in Liberian Palm Developments Ltd (LPD) for US$17.4 million (RM55.3 million) and a 20.1 per cent stake in Equatorial Palm Oil Plc for US$3.2 million, both from Singaporean stock exchange-listed Biopalm Energy Ltd.

KLK will also take on LPD’s US$608,000 loan from Biopalm Energy. The remaining 50 per cent stake in LPD is held by Equatorial, which is listed on the London Stock Exchange's Alternative Investment Market. 

"The acquisition is in line with KLK's strategy to expand its plantation landbank outside Malaysia and Indonesia for geographical diversification into the West African nation where there is a net deficit of edible oils.

"LPD's concession land is also agronomically suitable and located within 50km of deep-water ports," KLK said in its filing to Bursa Malaysia.

The proposed acquisitions will be financed by KLK's internally generated funds and is set to be completed in two weeks.

LPD's subsidiaries hold two 50-year concessions with 45 years remaining awarded by the Liberian government to rehabilitate and develop 25,547ha oil palm plantations, of which 3,750ha have been planted. A further 61,111ha have been earmarked for future joint expansion.

Creme de la creme of oil palm seeds

DESIGNER SEEDS: When it comes to planting oil palms, the old adage that ‘cheap things are no good and good things are not cheap’ holds true. Applied Agricultural Resources Sdn Bhd, a forerunner in oil palm breeding, tells OOI TEE CHING the effort and time that goes to producing high-quality seeds.

TO the uninitiated, Tan Cheng Chua's job of selling oil palm seeds to farmers may seem redundant. After all, why should farmers spend extra money to buy designer seeds when they can collect them from existing fields?

The answer lies in genetics. Seeds gathered from existing oil palm fields, according to the natural laws of heredity, will not yield as many fruits as the parent trees. 

The way in which dominant traits of select oil palm trees are passed from one generation to the next is closely studied by breeders at Applied Agricultural Resources Sdn Bhd (AAR).

Seed producer AAR advises more than 350,000ha of oil palm and rubber estates in Malaysia and Indonesia. It is an equal joint venture between Boustead Holdings Bhd and Kuala Lumpur Kepong Bhd (KLK).

In an interview with Business Times, AAR head of agricultural products Tan said seed choice is crucial in oil palm planting. 

"Oil palm planting is actually a very capital-intensive venture. My job is to ensure farmers get to reap the best returns on their investments. That's because once you sink the seeds into the ground, they will most likely stay there for the next 25 years," he said.

In his line of work, Tan had, on several occasions, cautioned newcomers to the industry that planting of oil palm seeds gathered from existing estates suffer from low yields, no matter how many bags of fertiliser are applied to the trees.

The oil palm sector, as one of the biggest foreign exchange earners for Malaysia, is one that is heavily invested with research money. For more than 50 years, scientists have been looking at ways to breed oil palm trees that produce good harvest.

As early as in the 1960s, crop scientists introduced the hybrid called the Dura X Pisifera (DXP) because this species is able to bear very big fruit bunches. Many oil palm planters affectionately refer to the DXP hybrid as "the Dolly Parton type" because like its namesake, it yields voluptuous fruit bunches.

In the 1980s, some tree breeders realised that one of the problems of big bunches is that the inner fruitlets do not have space to develop fully. In smaller bunches, however, the inner fruitlets have a greater chance to develop and ripen more evenly. Therefore, for the same weight, smaller bunches yield more oil.

"Bigger is not always better," Tan said.

That was when AAR breeders focused on producing trees that are of dwarf stature for easy harvesting and high oil yield in the fruit bunches.

Compared with the Dolly Parton standard, Tan highlighted that the dwarf-like AA Hybrida 1S has more, albeit smaller, fruit bunches. It also has higher oil yields. 

AAR sells these designer seeds at RM2.70 each, a premium to the price of the average Dolly Parton variant. 

At prime fruit-bearing age, AAR's semi-clonal seedlings, grown under good management and environment, are capable of producing more than 30 tonnes of fresh fruit bunches with over 23 per cent oil extraction rate. That works out to be about seven tonnes of oil per hectare in a year, almost two times higher than the country's average yield.

"The AA Hybrida 1S is 'the cream of the cream' as it can yield 20 per cent more oil than the previous-generation Dolly Partons," Tan said, adding "our semi-clonal seed production technology ensures consistent quality in every seed we produce".

AAR had started breeding the hybrids on experimental plots in the last three decades. Indeed, tree breeding is a meticulous and time-consuming labour of love. 

To speed up the process, AAR leverages on tissue culture to quickly grow large amounts of uniform, disease-free plant tissue.

Tan said the most widely recognised benefit of tissue culture is high uniformity in the resultant clones. Thus, tissue culture is an ideal method to bump up supply of elite clones.

Over in Ijok, Selangor, AAR owns the world's largest and most progressive oil palm tissue culture laboratory. Tissue culturists carry out cloning where shoots of the chosen oil palm trees are spliced, cultured and grown in test tubes. These shoots grow up to be identical to the "parent" tree.

The advantages of tree cloning are clear, Tan said. "It is much easier to manage and harvest oil palms if the trees behave uniformly". 

Today, AAR's facility at Tuan Mee estate is capable of churning out 1.5 million clonal palms per year. Tan said his company makes use of its tissue culture expertise to multiply its elite mother palms to produce the AA Hybrida 1S which they have been selling to the farmers for over five years now. 

His team of breeders is now working on the AA Hybrida 2 that will see a further 25 per cent improvement in oil yield. It is scheduled to be launched in 2015.

Also present at the interview was AAR plant breeder Wong Choo Kien. 

It is often stated that clonal plantations reduce genetic diversity. In response, Wong said this is a generalised view, which need not always be true. 

"Near clonal plantations actually provide a tool to choose genetic diversity at will. On the other hand, when a seedling material is used, the genetic diversity is essentially left to chance," he said.

When asked on the outlook for the medium term, Wong noted AAR's palm breeding plan is to produce elite planting materials using marker assisted genome-wide selected palms. This, he said, will lead to a speedier and more precise prediction of superior parents for seed production.

Palm oil brightens up Festival of Lights

ENLIGHTENING: As Hindu families gather for Deepavali, a well-informed devotee tells OOI TEE CHING that the traditional delicacies are best prepared with palm cooking oil and it is also used in other religious rituals.

THE first thing Lectumy Devi Subramaniam serves her guests on Deepavali is a sweet like ladoo and adhirasam, so that the start of the new year for them is also sweet. 

For the Festival of Lights celebration, achi murukkus with its distinct flower shape and murukkus are must-haves.

Murukku is a savoury snack made by combining rice flour and black bean flour made into a paste. This dough is pressed through a mold and the "textured" ropes are laid in tight spirals onto trays. These are then deep-fried in palm cooking oil.

Lectumy said her family has been using palm oil to deep-fry traditional delicacies such as achi murukku and murukku for some 20 years now. 

Before that, coconut oil was the main kitchen staple. Lectumy learnt to prepare Deepavali delicacies at the tender age of 14 from her mother. 

When Malaysia's palm oil refining industry churned out palm cooking oil to be widely distributed and conveniently stored in the 1980s, Lectumy's family made the switch from coconut oil.

In the last decade, despite Malaysia being one of the biggest exporters of palm oil, there had been an influx of cold climate cooking oils such as olive, soyabean, corn, canola and sunflower. 

Having experimented with a wide variety of edible oils, Lectumy found that palm oil is able to withstand deep-fry heat better than other vegetable oils like olive, soyabean, corn, canola and sunflower. 

Deepavali marks the victory of good over evil. The Sanskrit word "Deepavali" means an array of lights and it signifies the victory of brightness over darkness.

Lectumy highlighted that every religious ritual has a significance. The very act of lighting up clay lamps is to dispel the darkness of ignorance and glorify the light of God. 

Lighting up darkness reflects attainment of knowledge where there is ignorance and spreading of love amid hatred. Light is significant in Hinduism because it signifies goodness. Homes are lit with clay lamps to ward off darkness and evil.

Another ritual is to have an oil bath before sunrise on Deepavali day. It helps boost blood circulation, remove dead cells from skin surface and cleans body thoroughly. 

Massage oils used in oil baths are partly derived from oleochemicals that are processed from palm oil.

It was an enlightening experience to learn that palm oil, while mostly used for cooking and baking, is also present in religious rituals.

Nutritionally balanced, rich in Vit E

IN an interview with Business Times, in Kuala Lumpur, Malaysian Palm Oil Council (MPOC) chief executive Tan Sri Yusof Basiron states the facts and figures about palm oil nutrition.

Q: Why does palm cooking oil sometimes turn "cloudy" when placed in the refrigerator? Is the oil still safe for consumption? 

A: Palm oil becomes jelly-like and cloudy when stored in the fridge, when all the other major vegetable oils remain liquid. This is due to its 50 per cent content saturated acids, mainly palmitic and stearic, which help to increase the HDL, "the good cholesterol". 
More importantly, the other half of palm oil's fat content is monounsaturated and polyunsaturated - known to reduce LDL, the "bad cholesterol", and can benefit the cardiovascular system. 
Unlike other vegetable oils grown in temperate countries, palm oil contains the whole spectrum of Vitamin E, minerals, antioxidants and other phytonutrients. Its deep orange hue shows it is packed with beta-carotene, a Vitamin A variant. 

Q: Is palm oil less nutritious than other more expensive cooking oils? 

A: Palm oil is nutritionally balanced. One tablespoon of palm cooking oil contains 120 calories and 13.6g of fat. With a balanced combination of polyunsaturated, monounsaturated and saturated fats, palm oil is made up of 44 per cent oleic, 10 per cent linoleic, 40 per cent palmitic and five per cent stearic acids. 
While palm oil is the cheapest cooking oil in the world, it is nutritionally comparable to olive oil in its cholesterol effects. 
Red palm oil is packed with carotenes such as beta-carotene and lycopene - the same nutrients that give tomatoes, carrots and papaya their reddish-orange colour. Palm oil has the richest natural source of the supervitamin E called tocotrienols. Olive oil does not contain any carotenes or tocotrienols, yet it is marketed as being heart healthy. 

Q: Does palm cooking oil contain cholesterol? 

A: Like all vegetable oils, palm oil does not contain cholesterol. In fact, the US Food and Drug Administrator has allowed palm-based products sold under the Smart Balance brand (containing up to 50 per cent palm oil and 50 per cent local oils) to carry the US patented label "To help increase HDL (good cholesterol) and improve the cholesterol ratio (HDL/LDL)".

Q: There is much literature on the Internet stating palm oil is high in saturated fats. Is it bad for health?

A: Palm oil is actually nutritionally balanced. A recent analysis published in the January 2010 issue of the American Journal of Clinical Nutrition showed that there was no evidence to show that dietary saturated fat was associated with an increased risk of cardiovascular disease.
The effect of saturated fat should be seen in the context of a person's overall diet and environment. High intake of fatty acids associated with low intake in polyunsaturated fatty acids, consumption of sugary and salty foods, excessive alcohol intake, smoking and stress collectively trigger the onset of cardiovascular diseases. Fortunately, palm oil has a 50:50 profile of saturated and unsaturated fatty acids.

Call to abolish windfall tax

KUALA LUMPUR: OIL palm planters are reiterating their long-drawn appeal to the government to abolish the windfall tax, as it is seen as a deterrent for new investments.

"Planters are having a tough time with slimmer profits following worker shortages and the implementation of the minimum wage," said Malaysian Estate Owners Association (MEOA) president Boon Weng Siew. 

"Since the government restructured the CPO tax this year, it should have also abolished the windfall tax," he added.

When CPO trades above RM2,250 a tonne, planters pay a 4.5 per cent export duty and when the price rises above RM2,500, planters have to pay 5.5 per cent export duty as well as windfall tax. 

"This double taxation is punitive to oil palm planters in Peninsular Malaysia," Boon said.

He noted that oil palm planters in the Peninsular are expected to start paying windfall tax soon as the average crude palm oil price is nearing RM2,500 a tonne in the cash market. Planters in Sabah and Sarawak only need to pay windfall tax if the price crosses RM3,000 per tonne.

On top of the CPO export duty and windfall tax, oil palm planters also have to pay a 25 per cent corporate tax, cess amounting to RM13 per tonne of CPO, as well as a 7.5 per cent and 5.0 per cent sales tax in Sabah and Sarawak, respectively.

When compared to businesses in other sectors that just pay 25 per cent of corporate tax, it is obvious that oil palm planters are the most heavily taxed in the country.

It is even more punishing in Sabah and Sarawak. For every RM1 an oil palm planter in Sabah earns, he pays 40 sen in total cess and taxes, while in Sarawak, it is 37 sen.

MEOA also urges the government to cancel the cooking oil subsidy, which benefits restaurant operators, traders and people across the border more than the hardcore poor.

Currently, 75,000 tonnes of subsidised cooking oil are produced monthly when only 40,000 tonnes are needed for household consumption.

Subsidised cooking oil is now capped at RM2.50 a kg against the open market price of more than RM4 a kg in Thailand, Indonesia, Singapore and the Philippines.

"The price of palm-based cooking oil should be allowed to float in the open market," said Boon, adding that cooking oil vouchers can be issued to poor households to mitigate the impact of higher prices should the government do away with the subsidy. 

Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad concurs with MEOA that Malaysia does not need 75,000 tonnes of subsidised cooking oil a month, which is equivalent to 31kg per capita. The global average oil and fats consumption is only 20kg per capita.

Poram also urges the government to remove the five per cent export duty on refined palm kernel oil (PKO). Refined PKO is the only processed variant that is taxed across the value chain.

NextFuels plans to introduce drop-in biofuels

FUNGIBLE OPTION: The people behind biofuels trader Enagra Inc, based in the United States, were pioneers in shipping biodiesel to the US from Malaysia back in 2005. In leapfrogging towards a ‘greener’ initiative, they are looking to produce ‘drop-in’ biofuels derived from palm biomass, Ooi Tee Ching writes.

MICHAEL Petras scrolls through his smartphone for trading updates as he prepares for a chat session on making money from turning biomass to biofuels. 

“We’re looking to partner oil palm plantation firms to produce biofuels that are fungible with existing petroleum infrastructure,” the founder of Enagra Inc said in an interview here recently.

Fungible is a word rarely used in everyday conversation but it is common in the petroleum industry. It refers to the ease of mixing two fuels and not having any worries of how they will behave in the pipelines, tanks and engines. Two fuels of identical chemistry are fungible.

Currently, a handful of process engineering companies in Malaysia are experimenting with the development of second-generation biofuels from palm biomass. 

Here comes Petras purporting he has the right technology to catapult the industry to produce third-generation biofuels very much welcomed by petroleum companies.

Sensing scepticism, Petras quipped: “We were the pioneers in shipping palm biodiesel to the US. We had to deal with strong criticisms. I know ... it’s a constant battle with disbelief. After a while, we kind of got used to taking arrows shot in our chests!”

Petras said the third-generation biofuels venture is being spearheaded by sister company NextFuels LLC. His team is pioneering an initiative of converting biomass to biofuels that are chemically identical to their petroleum-based cousins and can, therefore, be immediately fed into petroleum refineries as transportation fuel because they are compatible with current engine technology. 

“First-generation fuels cannot be used in unmodified engines above small blends and are not applicable to the jet fuel market,” he said.

In leapfrogging into the production of third-generation biofuels, Petras explained the resultant fuel called GreenCrude is fungible hydrocarbon-based molecule and can be used seamlessly in cars, trucks, buses, planes, boats and trains. 

These advanced biofuels are consumer ready and do not require significant changes to current petro-leum refinery infrastructure, such as separate pumps, new flex fuel cars, or pipelines.

Based on current technology, Petras believes advanced biofuels can help meet the world’s future energy needs because they are scalable, commercially viable and affordable for consumers. 

“Since the chemical molecules of advanced biofuels is the same as fossil fuel, they are packed with more energy per litre than first- or second-generation biofuels,” he said. 

“You could basically drop in these biofuels into the oil majors’ distribution channel. With third-generation biofuels, oil majors don’t need to spend additional capital to build a parallel distribution system,” he added.

To put third-generation biofuels into perspective, Petras outlined the similarities and differences from the first- and second-generation biofuels. 

First-generation biofuels are created largely from feedstock that have traditionally been used as food. Biodiesel from vegetable oil and animal fats; and ethanol from corn have been subjected to vehement criticisms and often labelled the culprit behind rising food prices. 

Second-generation biofuels are made from biomass and this circumvents the heated debate of food-versus-fuel dilemma. Feedstocks include wood chips, palm biomass and municipal waste like garbage. 

Petras believes there is a better path forward in the form of third-generation biofuels. These fuels are produced from non-food sources like biomass and yet chemically identical to their petroleum counterpart.

In comparison, there are several technological pathways to converting biomass into liquids. For example, when biomass is processed at low temperatures, ranging from 250 to 350°C without oxygen, it undergoes a torrefaction process and the major conversion product is biochar. 

At greater temperatures of between 550°C and 750°C, also without oxygen, the process is known as pyrolysis (either fast or slow depending on the heat exchange rate with the biomass) and the major product is bio oil. 

At even higher temperatures of between 750°C and 1,200°C with limited inputs of oxygen, gasification occurs, producing mostly syngas with biochar and bio oils as by-products.

NextFuels’ approach is quite different. Instead of operating in a dry environment, NextFuels’ bio-liquefaction process heats the biomass in a liquid-water slurry at high temperatures and pressure. 

The bio-liquefaction process expels most of the oxygen from the biomass. The final product is GreenCrude, a renewable fuel that has identical molecular structure as that of petroleum.

Also present at the interview was NextFuels vice-president of sales for southeast Asia, Milton Leong. He emphasised the cost-saving advantage in NextFuels' technolgy is not having to dry the biomass before processing.

The bio-liquefaction method is specifically designed to work with wet biomass. As a result, the energy balance achieved is around 65 to 70 per cent. By contrast, processes like Fischer-Tropsch are only able to achieve energy balances of up to 40 per cent.

Leong said NextFuels plans to put up its pilot plant in Malaysia by mid-2014. “We’ve not finalised the exact location but it will be near to a biomass source.” 

Leong noted that the bio-liquefaction technology allows NextFuels to commercially produce bio-based petroleum at US$75 to US$85 (RM239.50 to RM271.40) a barrel out of wet biomass.

“One can distill 960 barrels of GreenCrude per day (bpd) from the biomass churned out from a typical 60-tonne palm oil mill,” he said.