Published November 25, 2008

Planters urge govt to help stabilise palm oil prices

By PAULINE NG
IN KUALA LUMPUR

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MALAYSIA'S top plantation companies have suggested government incentives for industries to switch to palm bio-diesel as well as burning the oil as feedstock to generate power as part of initiatives to stabilise prices.

'We are still making profit although we may not like those profit figures.' - Lee Oi Hian, Kuala Lumpur Kepong chief

The proposals come in the face of excessive crude palm oil (CPO) supplies at a time of slowing demand and prices a third of their peaks.

Giving their full support for the government's initiatives to allocate RM200 million (S$83.4 million) to replant 200,000 ha of ageing trees, the planters said factories and even fishermen - currently on diesel subsidies - could shift to CPO use with the right incentives.

'The more oil we can consume in the country, the greater the chances of stabilising the price of palm oil,' said Kuala Lumpur Kepong chief Lee Oi Hian.

KL Kepong, along with IOI Corporation, Sime Darby, United Plantations, Felda Holdings and Boustead Holdings, produce about 60 per cent of Malaysia's total CPO.

Following a meeting of the players yesterday, the company heads told a media conference that despite the 'very challenging period', they were still profitable at current CPO prices of around RM1,500 per tonne and not in a 'distress situation'.

'We are still making profit although we may not like those profit figures,' quipped Mr Lee.

IOI executive chairman Lee Shin Cheng said he expected prices to recover and to average RM2,000 to RM2,400 next year.

Even so, with about two million tonnes of stock and prices close to breakeven point for the less productive planters, the companies with the backing of the Malaysian Palm Oil Board are looking to a RM500 million price stabilisation fund to maintain prices.

One of the world's largest palm oil producers, Malaysia's annual output should hit an estimated 17.5 million tonnes, but global demand has shrunk in the economic downturn despite the vegetable oil's huge discount of up to US$250 per tonne to soya oil.

'The industry is asking if we can put part of the money available to support the price,' Mr Lee said of the RM300 million that remains of the fund, given that RM200 million would go towards replanting efforts.

Whether the government agrees to the suggestions, which have yet to be formally presented, remains to be seen - but national utility Tenaga Nasional has pointed out it is not feasible to use CPO as feedstock given it would cost more than coal.

In February, the government plans to implement the use of blended bio-diesel fuel in government vehicles, and analysts estimate the production of the B5 biofuel with 5 per cent palm oil would remove 500,000 tonnes of palm oil annually when fully implemented in early 2010.

The planters who want fertiliser costs reduced by half said they would adjust costs by reducing the amount of fertiliser used. Fertiliser accounts for half the production costs but it has increased two-fold since the beginning of the year.