17/12/2007 (The Star Online) - Faced with high operational costs in the production of biodiesel and high crude palm oil (CPO) prices, Carotech Bhd, which also produces phytonutrients for the overseas market, will concentrate on the sales of phytonutrients, which has higher margins.

Phytonutrients refer to chemicals or compounds that come from edible plants. Carotech products come from virgin palm oil and palm fruit and are used in dietary supplements, pharmaceutical products, functional food and beverage and personal care applications.

The company is a listed subsidiary of Hovid Bhd, a pharmaceutical company.

“We're pushing phytonutrients sales aggressively from this financial year because of the higher margins, with more research and development (R&D) activities in the pipeline,” Carotech managing director David Ho told StarBiz. The company's financial year ends June 30, 2008. 

In R&D, Carotech recently won the ICIS Innovation Award for small and medium-sized companies with its integrated process for the extraction and concentration of a range of phytonutrients and production of biodiesel from virgin crude palm oil. ICIS is a global publisher of chemicals information.

Ho said it was not as profitable to produce biodiesel as it was a year ago due to the higher cost of CPO, which has doubled to around RM3,000 per tonne compared to between RM1,800 and RM1,900 per tonne last year. 

“Cost is going up but not selling price, so we're kind of squeezed,” he added. 

A fuel subsidy of US$1 per gallon for biodiesel in the US makes it doubly unattractive as a business right now, Ho said, adding that two years ago there was a lot of excitement for biodiesel due to demand and consequently the company's sales of phytonutrients lagged. 

He said phytonutrients and biodiesel products contributed equally to revenue last financial year but that may not be the case in the coming financial year.

Ho said the local regulatory framework was not supportive of biodiesel consumption although plantation companies had been lobbying the Government on a coherent policy. 

“Under the National Biofuel Policy launched early last year, 91 licences to operate biodiesel plants were given out but only a handful of plants have been constructed and are operational,” he added. If they run the plants, there is a risk that they may make a lost due to the tougher environment, Ho said.

The company exports all of it because the diesel subsidy makes biodiesel use in the country not viable, he said. 

“To make consumption viable, there must be tax incentives and a subsidy structure that will make biodiesel an attractive alternative,” Ho said.

He said despite the costs, the company had no choice but to continue producing biodiesel otherwise it would be deemed as unreliable. “We just have to ride out the tough times at this juncture and hope that CPO prices will moderate so that it will be more profitable,” Ho said, adding that the company's new integrated oleochemicals plant in Lumut, Perak, which has a 120,000-tonne capacity would be operational next year.

“We are looking at higher revenue this year compared to last year but the first half has not been very exciting and we're looking at a turnaround in the second half,” he said. 

“Due to higher operational costs, profit may fall and while we've instituted cost-cutting measures over the past year, the CPO price has far outstripped any benefit from the cost-cutting.” Ho said plans for an integrated oleochemical plant in China was ongoing but has been delayed due to the high CPO price. The company had incorporated Carotech Yangzhou Biofuel Company Ltd late last year with a view of setting up a plant there. 

“It is the same with our joint venture in India, price is an issue and I don't think it will be a significant revenue contributor but we've got the mechanism in place if there're opportunities,” he said.

The company had entered into a joint venture agreement with Khard Soaps Pvt Ltd in September to supply biodiesel and palm oil via Khard Carotech Pvt Ltd.