7/10/ 2005 (The Star) - PALM oil prices are rallying and so are shareprices of plantation companies on Bursa Malaysia. With IOI Corp Bhdhitting its all-time high and Golden Hope Plantations Bhd at a multi-yearhigh, optimism surrounding plantation stocks is at a near fever pitch. Aglobal push towards biodiesel is a key factor in the increase in crudepalm oil prices, which has a favourable impact on plantation stocks onBursa Malaysia. STARBIZ asked Golden Hope chief executive Datuk SabriAhmad to shed some light on what is happening in the plantation sector andits outlook.

Datuk Sabri AhmadQ: The plantation sector is staging a rally on Bursa Malaysia. Do youthink this is sustainable?

A: The present rally of the plantation sector is supported by positiveresponses from investors on policies, strategies and incentives onbiotechnology and biofuel in Budget 2006, which will directly translateinto a higher demand for palm oil.

The labelling of trans-fatty acid in the United States, fullimplementation of World Trade Organisation (WTO) in China in 2006, andutilisation of palm oil biomass are also positive contributing factors.Moreover, festive seasons around the corner may also take crude palm oil(CPO) price upward with rising demand from importing countries in theMiddle East and South Asia.

The industry is optimistic of the CPO price which is approaching RM1,500per tonne and will possibly reach RM1,550 per tonne in the near future.This favourable price trend will translate into higher bottom lineperformance of plantation companies.

I feel that the sustainability of the current rally in the stock marketdepends on the development of biofuel in the country and movement ofpetroleum prices. Correction and adjustment are expected. However, I amhoping that the price increase would be at a reasonable pace. If the pricegoes too high, for example above RM1,800, biodiesel using palm oil may notbe profitable.

Q: What would be the factors driving the plantation sector forward?

A: The major factors driving the plantation sector forward are:

Integrated operation with economies of scale;

Production, export and consumption of bio-diesel;

Labelling of trans-fatty acid in the United States in 2006;

Full implementation of WTO in China in 2006;

Price movement of crude petroleum;

Utilisation of biomass;

Biotechnology in palm oil industry;

Synergy creation between palm oil and other sectors, for example healthsupplement sector, in terms of traceability, quality, branding andvalue-added products;

Effective cost management, productivity and process improvement;

Business driven R&D; and

Sustainable development in palm oil industry whereby international fundsgive high interest to Malaysia.Q: Many people regard the biodiesel push to be a long-term one. When doyou expect to put up your project if any, and potential payback? Whatwould the payback period be?

A: Golden Hope will begin its biodiesel projects in Malaysia very soon andhopes to start production by the end of 2006. Venturing into the biodieselproject makes business sense as it will help boost the country’s palm oilindustry and create a new stream of revenue.

Biodiesel refers to chemically reacted vegetable oils to produce methylesters that have properties similar to petroleum-based diesel. Biodieselis made from rapeseed oil, soy oil, palm oil, coconut oil, sunflower andother edible oils, and blended with diesel from fossil fuel.

Palm oil is renewable and healthier. It does not pollute the environment.Blending palm oil with diesel will, therefore, reduce the pollution level.

As many countries race towards reducing green house gases by 5% relativeto the 1990 level by 2008-2012, the demand for biofuel will increasetremendously

In Malaysia, if only 5% of palm oil is blended with diesel, a total of500,000 tonnes of palm oil will be utilised for this purpose each year.

A mere RM100 increase in the price of palm oil will translate into RM1biladditional revenue to the industry.

Malaysia’s move towards biofuel would help stabilise the price of palm oilas proven in the case of other vegetable oils used in biodiesel.

The introduction of the biofuel policy could be the first step towardsmaking Malaysia a main player in the global biofuel/biodiesel production,together with others, such as Germany, France and Italy.

Golden Hope’s biofuel project in The Netherlands is in the final stages ofevaluation.

On May 20, a memorandum of understanding (MoU) was signed between RubiatecSdn Bhd, a wholly-owned subsidiary of Golden Hope and Biox Group BV,Europe’s largest and fastest growing supplier of biofuel for energygeneration.

Under the MoU, Rubiatec plans to supply stearin to Biox for use as biofuelto generate energy for power generation plants in The Netherlands. Thisprogramme manifests Golden Hope’s participation in the NationalBiotechnology Policy launched by the Prime Minister recently.

The potential for payback is very good as market research indicates veryhigh returns from biodiesel for reasons mentioned above. In fact, weexpect the payback period to be below three years.