30/05/2012 (Jakarta Globe) - IOI Corp., which now has 3 billion ringgit ($951 million) in cash reserves, is on the prowl to acquire more oil palm estates in Indonesia.

“We’re always looking at opportunities to increase our plantation land bank. This sizeable acquisition is likely going to be in Indonesia,” executive director Lee Yeow Chor said, declining to elaborate on the timing of the impending purchase. Lee signaled that he was optimistic about the prospects of its mainstay palm oil business, following adverse weather conditions in the last two years that resulted in challenging conditions for plantation companies.

The onset of dry conditions wrought havoc on the productivity of the country’s oil palm trees. This meant IOI, which has a matured oil palm area of about 140,000 hectares, is not experiencing much growth in oil palm fruit production in the current year ending June. This, Lee said, is having an impact on palm oil prices.

“Nevertheless, lower production will not have an effect on our financial performance because prices will more than compensate for it,” he said after a tour of the Pamol estate complex in Johor on Friday.

He said that palm oil prices had averaged around 3,100 ringgit per metric ton during the first half of this year. In the last six weeks, palm oil prices have been on the decline from a peak of 3,600 ringgit per ton. Late last week, the third-month benchmark palm oil futures on the Malaysian Derivatives Exchange closed 61 ringgit higher at 3,130 ringgit per ton.

“The spike in prices at the beginning of the year was overdone. As the market factors in the euro zone crises, we see some selldown,” Lee said.

“Based on the fundamentals, we are pretty confident that the price will recover to around 3,200 ringgit per ton. Stocks are tight, while orders are coming in for Ramadan in July. We should see price upside in the coming months,” he added.

Lee also said IOI was aggressively stepping up its plantation development program in Indonesia. The group owns a 67 percent stake in a joint venture for oil palm cultivation in Kalimantan. Since 2009, the joint venture has planted 10,000 hectares. The pace of planting is expected to pick up significantly in the coming years.

“We aim to plant at a rate of 10,000 hectares per year,” he said. IOI’s other interest in Indonesian oil palm estates is also via a 30 percent stake in Singapore-listed Bumitama Agri, which has so far planted around 120,000 hectares .