Archive for February 2014

Bursa Malaysia to start RBD palm olein futures

KUALA LUMPUR: --- (Bloomberg) Malaysia will start a futures contract for refined, bleached and deodorised palm olein in 2014 so that refining margins can be hedged, according to the head of the country’s derivatives exchange.

“As markets become more competitive, a processing margin is no longer guaranteed,” Chong Kim Seng, chief executive officer of Bursa Malaysia Derivatives Bhd, said in an interview in Kuala Lumpur yesterday. 

“The processing margin becomes very volatile, depending on the cost of feedstock or raw materials, and the selling price of the products.”

Malaysia wants to broaden its range of financial products after establishing itself as the largest center for crude palm oil trading and Islamic finance. 

Bursa Malaysia Derivatives, which is 25 per cent owned by CME Group Inc. and the rest by Bursa Malaysia Bhd, started a gold futures contract in October. In three months to the end of 2013, a total of 24,253 contracts were traded, said Chong.

“This new contract will benefit the exporters and importers of RBD palm olein,” Chandran Sinnasamy, head of trading at LT International Futures Sdn Bhd, said by phone. “It’s an additional avenue for them to hedge to reduce their risk.”

The exchange is also looking into rubber and silver futures contracts, said Chong, without giving timeframes. A rubber futures contract may emulate palm oil’s success as Malaysia is both a producer and consumer, being one of the top makers of rubber gloves and condoms, while demand for silver is growing in Asia, he said.

Volumes for crude palm oil may double in three years to 400 million tonnes from 2013's 200 million tonnes traded on the exchange, said Chong, speaking before a palm oil industry conference next week organised by Bursa Malaysia Derivatives and CME Group.

i-VCAP fund to gain from rising CPO prices

KUALA LUMPUR: Rising palm oil prices bodes well for the soon-to-be listed MyETF MSCI Malaysia Islamic Dividend as 20 per cent of its share basket is made up of oil palm companies.

Last week, crude palm oil (CPO) futures on the Bursa Malaysia Derivatives market surged past the RM2,700 per tonne level after fluctuating between RM2,500 and RM2,700 per tonne for 15 weeks.

Yesterday, the third-month benchmark CPO futures closed at RM2,779 per tonne. In view of the rising palm oil prices, it is expected that the share prices of plantation companies will go up.

Among the plantation companies in the MyETF MSCI Malaysia Islamic Dividend Top 10 holdings are Kuala Lumpur Kepong Bhd, Hap Seng Plantation Holdings Bhd and Ta Ann Holdings Bhd.

“When the market that an exchange-traded fund (ETF) tracks does well, the ETF itself will also perform well,” said Mahdzir Othman, chief executive officer of i-VCAP Management Sdn Bhd, which manages the fund.

ETFs are open-ended investment funds that track the performance of an index by holding a basket of securities that allow investors to gain exposure to various companies or fixed income securities with just one trade.

ETFs face the same market risks as stocks and equity unit trust funds but incur lower fees because they are passively managed. Investors will not incur sales or exit charges when transacting ETFs, except for the usual trading charges.

Currently, there are five ETFs listed on the local bourse.

The first-ever ETF floated on Bursa Malaysia was the ABF Malaysia Bond Index Fund in July 2005. Managed by AmInvestment Bank, it was then the region’s only bond ETF, tracking Malaysian government bonds.

Then came the country’s first equity ETF, the FTSE Bursa Malaysia KLCI (then known as  FBM30etf), which tracks the top 30 stocks by market capitalisation on Bursa Malaysia. This fund, listed in July 2007, is also managed by AmInvestment Bank.

In 2008, i-VCAP Management launched MyETF Dow Jones Islamic Market Malaysia Titans 25, comprising 25 blue-chip syariah-compliant counters.

 Six years on, i-VCAP Management is launching MyETF MSCI Malaysia Islamic Dividend. Priced at around RM1 per unit, this open-ended fund, with an approved size of 500 million units, will be listed on March 21.

 This  ETF is scheduled to pay dividends to investors twice a year. It is projecting a dividend yield of between four and five per cent. Potential investors are invited to subscribe via CIMB Group, Kenanga Investment Bank and RHB Group.

Also present at the briefing yesterday was i-VCAP Management chairman Wan Kamaruzaman Wan Ahmad, who is also Kumpulan Wang Persaraan chief executive officer. He noted that although ETFs have been traded on Bursa Malaysia for almost a decade, retail interest  has yet to really take off.

CIMB Investment Bank equity capital markets director Bingley Sim concurred that the main challenge faced by ETFs in Malaysia is  the low investor awareness. He said CIMB will hold more roadshows, investment conferences and awareness campaigns to educate the public on ETFs. 
“We will play our role to help increase market liquidity by encouraging more participation from new investors."

Choosing the Right Cooking Oil

Surprise! Surprise! Seattle TV viewers were recently encouraged to switch up their cooking oils. Health-conscious people were told to swap out some of their regular vegetable oils for Malaysian palm oil, according to an interview with Dr. Jonny Bowden on the King 5 New Day show. 

Bowden explained that between safflower, corn, canola and sunflower oils, we consume too many oils that may cause inflammation. 

Malaysian palm oil, on the other hand, has anti-inflammatory properties. Bowden surprised Seattle TV viewers by mentioning research indicating that saturated fat doesn’t cause heart disease. This fear of saturated fats has caused many people to miss out on important nutrition. 

Cholesterol-neutral Malaysian palm oil, for example, is rich in tocotrienols and carotenoids. An abundance of beta carotene gives the oil its red colour.

“I’m a big advocate of redeeming the reputation of saturated fat,” said Bowden. Saturated fat’s unwarranted reputation caused people to cook with vegetable oil, which is high in inflammatory omega-6. 

Bowden urged viewers to cut back on their temperate oils use and to “move back to some of the more healthy saturated fats,” including Malaysian palm oil. Rich in antioxidants,  It’s also full of tocotrienols, which may protect the brain from stroke damage.

Genting Plantations buys SPC Biodiesel

KUALA LUMPUR: Genting Plantations Bhd's wholly-owned GP Overseas Ltd has bought SPC Biodiesel Sdn Bhd for RM33 million from Australian-listed Sterling Plantations Ltd. 

Three months ago, there were talks that Felda Global Ventures Holdings Bhd (FGV) was also keen on buying up SPC Biodiesel, having already bought a 100,000-tonne per annum biodiesel refinery at Kuantan Port at Pahang for RM34.9 million in April 2013. 

SPC Biodiesel owns a 100,000-tonne per annuam biodiesel plant located in Lahad Datu, Sabah. 

Genting Plantations said, in a filing to Bursa Malaysia yesterday, that the SPC Biodiesel acquisition is in line with its objectives to venture into downstream activities related to palm oil.

Sarawak will not bow to boycott threats

Kuching: (Bernama) Singapore-based Wilmar International Ltd, which has its refinery in Bintulu, has informed Sarawak government that it would stop buying palm oil harvested from oil palm trees planted in logged-over areas and peat swamp land in the state from next year. 

Sarawak Land Development Minister Tan Sri Dr James Jemut Masing said Wilmar made known its decision in a letter, on 5th December 2013, when it signed a "No Deforestation, No Peat, No Exploitation" pledge in its palm oil trades with food giant Unilever plc.

Masing said he had replied to the letter and briefed the state cabinet on the matter, adding that the state government would not bow to such undue pressure from the company.

"If there is a stop in planting of oil palms in logged-over area and peat swamp, it will definitely affect the state's revenue, the 17,578 smallholders as well as some 300,000 people in rural areas who are involved in oil palm planting. 

Wilmar, which set up the first palm oil refinery in the state more than 10 years ago, buys 55 per cent of the CPO produced by 41 mills in the state.

The other 45 per cent are sold to the Assar Senari refinery in Kuching and three other refineries.

Masing said there are only two main areas in Sarawak where oil palms are planted; namely in logged-over area and peat swamp soil.

"If we are not allowed to plant in those two areas, then there will be no oil palms planted in Sarawak. We have no areas where there are no forest... if you want to plant oil palm where there is no forest, you will have to go to the Sahara Desert because there is no forest there," he quipped.

Sarawak has 1.6 million hectares of peat swamp and a wide expanse of that area had been planted with oil palms. "This directive from Wilmar has a very disastrous effect on us because it will stop our rural poverty eradication programme.

"I believe the company has been pressured by non-governmental organisations in Europe to make such a restriction on the state's oil palm planting programmes. They use environment impact argument but it is actually an economic argument.

"They told us not to sacrifice our environment with the planting of oil palms in our forest and peat swamp soil. I don't agree to that because there are no soya beans and sunflowers planted in the Sahara desert. Soya beans and sunflowers are planted all over Europe and their forest areas are also cut down," Masing said.

He said the European communities are jealous because the production of oil from oil palm is 10 times better than soya beans, rapeseed and sunflower.

"I do not agree with their argument that planting oil palm in logged-over areas and peat swamps is bad for the environment. We follow a set of proven good agricultural practices that balances the needs of people, planet and profits. The state government will not succumb to baseless allegations.

"Our method of improving the lot of the people in our state is not up to negotiations with the international community. We will continue to find ways to improve our people's livelihood," Masing said, adding the state government is very cautious on how it protects the environment. "We already have our own experts to do the job."

"Nobody can stop oil palm and rubber planting in the state as this is where part of the state revenue comes from. At the same time, oil palm and rubber planting is key in helping rural poverty eradication.

In 2012, sales tax from oil palm was RM425 million, which is 10.8 per cent of the state's total revenue, while sales tax for between 2002 and June 2013 was RM2.16 billion," Masing said. 

He said the crop contributed RM300 million in income to smallholders in the state, adding that every smallholder earns RM3,328 per hectare a year. So far, a total of 90,607.30ha are planted with oil palm by smallholders in the state.

"If we stop the smallholders from planting oil palm, it will affect their livelihoods. No, we cannot bow to this pressure. We must stand by the fact that oil palm cultivation has improved the social economic life of Sarawak rural populace," he stressed.

On prospects of palm oil exports, the state government will find other buyers from emerging markets, including from China and India, if Wilmar is firm on its decision, he added. 

Planters urged to rethink signing pledge

Kuching: SARAWAK Deputy Chief Minister Tan Sri Alfred Jabu Numpang has urged plantation companies that are scheduled to sign the "No Deforestation, No Peat, No Exploitation" pledge with Unilever Plc not to act hastily.

He acknowledged that those are business-to-business arrangements but said "the implication of these deals will affect the livelihoods of 800,000 people living in peat area, native customary land of rural Sarawak".

Two months ago, Wilmar, the world's biggest palm oil trader, and food giant Unilever signed a "No Deforestation, No Peat, No Exploitation" pledge in their palm oil trades. 

Other plantation companies rumoured to have been roped in to sign with Unilever are Sime Darby Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd and Felda Global Ventures Holdings Bhd.

Last month, Sarawak Oil Palm Plantation Owners Association (Soppoa) strongly protested against the pledge as it is seen as discriminating against the state's palm oil supply. 

Soppoa manager Melvin Goh had reportedly said Wilmar's pledge was the start of a stranglehold on oil palm farmers that would see them coerced into a path that would kill the industry's growth.

"Corporations should not be hasty. They should consult the rural folk. The Sarawak government has always worked hard in its poverty alleviation programmes. 

"The planting of oil palms and rubber trees are among the measures that we are implementing to bridge the income gap between rural and urban Sarawak," Alfred told Business Times on the sidelines of "Reach and Remind Friends" seminar organised by the Malaysian Palm Oil Council, here, yesterday.

In his opening address at the seminar, Alfred told oil palm planters that one must be courageous to reject draconian terms and conditions that will stunt both their ability to earn income and the country's palm oil exports. 

He said the attempt to boycott fresh fruit bunches harvested from oil palms planted in peatland is inhumane.

To a question if the pledge is seen as interfering in the state government's sovereign rights in determining land usage, Alfred said the corporations should think twice and consider the welfare of those people living in rural Sarawak. 

He urged them to be careful in their business arrangements. "The Sarawak government is committed to its poverty eradication measures and that include planting oil palms on land that have been set aside for agriculture," he said.

Also present was Sarawak Land Consolidation and Rehabilitation Authority (Salcra) general manager Datu Vasco Sabat Singkang. 

He noted that Wilmar operates a palm oil mill in Saratok. "As joint venture partners, we were not consulted when Wilmar signed the pledge with Unilever in December. 

"We are not comfortable with this as it will have negative consequences on the 10,000 small farmers whom we source fresh fruit bunches from. Since many of them plant their trees on peatland across Saratok, Seri Aman and Sarikei, what are we to say to them?" Vasco asked.

Felda IFFCO sell Cincinnati biodiesel plant

Cincinnati, USA: FELDA IFFCO Sdn Bhd has agreed to sell its biodiesel plant in Cincinnati, Ohio, to United States-based refiner Marathon Petroleum Corp (MPC). 

MPC said it signed an agreement, earlier this week, to purchase the plant, which currently produces several products, including biodiesel and glycerin, from Felda IFFCO.

"The capacity of the plant is 4,100 barrels per day. The transaction is expected to close in April 2014," it said in a statement. However, details of the transaction were not disclosed.

MPC senior vice-president of supply, distribution and planning, Mike Palmer, said the company has been a producer and large blender of ethanol for many years, and this acquisition will broaden its renewable fuels portfolio with a quality asset.

"We continue to grow our biodiesel blending volumes and this acquisition will be a natural value chain fit. Also, the facility is located in the heart of MPC's Midwest assets, providing efficiencies in our product supply logistics," he said.

MPC is US' fourth-largest refiner, with a crude oil refining capacity of about 1.7 million barrels per day in its seven-refinery system.

Meanwhile, Felda IFFCO is a joint venture between Felda Global Ventures Holdings, Malaysia's largest diversified organisation, and IFFCO Holdings, United Arab Emirate's (UAE) leading manufacturer and marketer of fast-moving consumer goods and industrial food products in the Middle East and Africa.

According to the Felda IFFCO website, the Malaysian-UAE partnership integrates the entire value chain from oil palm cultivation, milling, refining, processing, branding and distribution of a complete range of palm and palm kernel based oils and fats to global markets.

Apart from Malaysia, Felda IFFCO has refining and processing activities in China, Indonesia, Turkey and the United States.

Disguised trade barriers harm palm oil exports

UNREALISTIC PLEDGE: Environmental activists’ intention to do good is matched by their discretion to mislead. Stakeholders of the palm oil industry tell Ooi Tee Ching how the smear campaign by these activists is very much a trade wolf in ‘green’ sheep clothing.

MALAYSIAN Palm Oil Association (MPOA) chief executive Datuk Dr Makhdzir Mardan says palm oil is the most popular cooking oil consumed around the world. The bigger the industry grows, the easier it becomes a target of immoral smear campaigns.

Oil palms can only be cultivated in humid tropics. Southeast Asia is the lead producer of palm oil, followed by Latin America, Papua New Guinea and West Africa, all of which are developing countries.

According to data from industry regulators, Malaysia and Indonesia collectively ship out more than 35 million tonnes of palm oil to over 150 countries.

Oil World, an authoritative trade journal, stated that in 23 years, global palm oil consumption had expanded threefold. Rapeseed oil purchases, however, only increased by 2.5 times and soyabean oil's popularity just doubled.

As global palm oil usage increased in the last two decades, so did trade rivalry. Hence, the coveted smear campaigns on the oil palm industry.

Since mid-2013, Sime Darby Bhd, Kuala Lumpur Kepong Bhd (KLK), Felda Global Ventures Holdings Bhd and TH Plantations Bhd faced relentless allegations that have proved to be false. Damning rumours of air pollution, forced labour and land grabbing in Indonesia, Papua New Guinea and Liberia were wrongly hurled at these corporates. 

Makhdzir noted that vehement attacks against the oil palm companies and presumption of guilt on the basis of half truths and lies published by these activists on the Internet amounted to immoral media prosecution. "It's deplorable and exasperating."

Asked if KLK has been slapped with court restraining order from planting oil palms in Papua New Guinea, Makhdzir shook his head. He clarified that KLK is actively engaging with the local community, and clan leaders' written permission has been tendered as evidence at court proceedings there. 

KLK even took pains to explain to the claimants that they had violated laws when they threatened its representatives. "It's beyond logic to assume Malaysian oil palm companies, which are being threatened, are to be blamed for imagined problems of forced labour or land grabbing," Makhdzir said.

In December last year, green group World Wide Fund for Nature (WWF) arranged a signing ceremony for world's biggest palm oil trader Wilmar International Ltd and food giant Unilever Plc to undertake "No Deforestation, No Peat, No Exploitation" in their palm oil trades.

Although this looks like an ordinary business arrangement, Makhdzir said it is actually the start of a systemic choke on plantation companies being coerced into a suicidal pathway that will drain off deserving profits expected by shareholders. 

Indeed, plantation companies listed on stock exchanges are significant dividend channels for investors and key export contributors to developing nations like Malaysia and Indonesia. 

Hundreds of millions of corporate money have been and continue to be diverted from investors. These green activist groups have taken to execute coup d'etats to dictate business policies and behaviour based on their narrow definition of sustainability. 

Makhdzir said this had compromised what is equitable and fair to investors at the stock market. "Pension funds like the Employees Provident Fund of which you and me contribute to, the Armed Forces Superannuation Fund and Kumpulan Wang Persaraan are all heavily invested with plantation companies." 

If the general public think what is happening to oil palm plantation companies has no bearing on their savings, think again. "Do you invest in Amanah Saham Bumiputera, Amanah Saham Malaysia, Amanah Saham Wawasan 2020 or Amanah Saham Didik? Are you a depositor with Tabung Haji? Do you put money with Koperasi Permodalan Felda?" Makhdzir asked. 

He then highlighted that Permodalan Nasional Bhd, the country's biggest fund manager, and Lembaga Tabung Haji, the Muslims' pilgrimage fund, derive a big chunk of their dividends from palm oil exports. 

What this means is that an average Malaysian's savings is considerably tied to the country's palm oil sales. If palm oil exports shrink as a result of tariff and technical trade barriers, the pension and unit trust funds holding big stakes in plantation companies may not be able to generate as much dividends. If that happens, the funds may not be able to pay as much as it did to depositors and investors.

In a separate interview, Malaysia's Plantation Industries and Commodities Minister Datuk Amar Douglas Uggah Embas noted Wilmar's pledge is unrealistic.

Wilmar and its partners have adopted a discriminatory definition of "No Deforestation" to confine themselves to sourcing vegetable oil from farmers who plant their crop on grassland. This definition fits oilseed farmers in cold countries but disqualifies oil palm planters in tropical Malaysia and Indonesia. 

When tropical land is left idle for a long time, one can expect tree regrowth. So, the clearance of tree regrowth to plant oil palms automatically disqualifies a planter from selling his produce to Wilmar.

Uggah, who is also member of parliament for Betong, went on to question this insidious attempt at backdoor legislation disguised as business-to-business deals. "Where is the respect for Malaysia's laws enacted by Parliament and state assemblies that had shaped good tropical agriculture practices, workers' rights and sustainable return on investments for farmers?"

Last month, the United Kingdom's Telegraph newspaper reported that these green activists are given more than £90 million (RM498.6 million) from the European Union's "cash carousel". 

One Brussels-based lobbyist, the European Environmental Bureau, had received £10.5 million from the fund since 1997. The European policy office of the WWF, which is based in Brussels, received £7.4 million, while Friends of the Earth Europe, also based in Brussels, is the third highest recipient with £6.4 million.

Uggah, a seasoned politician, acknowledged big money from the EU at the disposal of these activists allow for large staff strength to produce immense volume of reports, press releases and media interviews, turning them into primary sources for journalists. The amplifying effect of these public pronouncements distort free-trade market forces. 

Uggah then pointed out another news article on the Internet of which green activists took great pride in their war cries to "systemically take apart the markets and capital sources of Big Oil Palm".

"Why should our oil palm industry be coerced into suicidal terms and agreements on land usage dictated by green activists who are financed by developed nations?" he asked. After pondering on it for a moment, he said the attempt to deny the rightful development of natural resources is a big disservice to the millions of oil palm farmers in developing nations.