23/09/2011 (Bloomberg) - Sime Darby Bhd. (SIME), the world’s biggest publicly listed palm-oil producer, expects harvests from its plantations in Malaysia and Indonesia to climb in the year to June as yields improve.

The increase reflects the “improvement in the oil- extraction rate and also higher production of FFB,” said Group Chief Executive Officer Mohd Bakke Salleh in an interview, referring to fresh fruit bunches. He didn’t specify output.

Rising harvests may extend a 20 percent decline in palm-oil futures this year on the Malaysia Derivatives Exchange, and widen the discount to soybean oil, its main competitor for cooking and fuel. That could curb near-record global food costs that climbed 26 percent in the past year, according to the United Nations. Palm oil is made by crushing the plum-sized fruit which grow in tightly packed bunches.

Futures may hold at 3,000 ringgit ($953) a metric ton until the yearend because of their “significant discount” to other cooking oils, said Mohd Bakke, 57. Demand from India will support prices as the country prepares to celebrate Diwali at the end of October, he said.

Sime Darby, which supplies about 6 percent of global output, produced 2.45 million tons of crude palm oil and 10.11 million tons of fruit bunches in the year to June 30, company data show. Output in Malaysia, the second-biggest grower, may increase to 18.3 million tons in 2011 from 17 million tons last year, Choo Yuen May, director-general of the Palm Oil Board, said Aug. 8.

Gap Widens
Palm oil has slumped 24 percent from a 35-month high of 3,967 ringgit on Feb. 10. December-delivery futures dropped 1.8 percent to 3,010 ringgit today.

Futures may see a gradual recovery after November to reach 4,000 ringgit by the second quarter as demand for biofuel cuts soybean-oil supply and a potential easing of monetary policy in China and India boosts demand, Dorab Mistry, director of Godrej International Ltd., said Sept. 16.

Palm oil’s discount to soybean oil deepened to $248.20 per ton from $244.34 yesterday. That compares with an average of $133.49 a ton in the past decade, Bloomberg data show. It widened to $289.97 on Aug. 31, the most since 2008.

The monsoon season which typically starts in the last few months of the year could hamper harvesting, said Mohd Bakke, who has more than 20 years experience in the industry. It is “difficult to be a weather forecaster because the weather pattern has taken a different profile these days,” he said.

Liberia Plantations
The La Nina pattern caused a drought in Latin America, threatening soybean crops, and floods in Indonesia and Malaysia, which hurt oil-palm harvests early this year. It may return by December, said the Australian Bureau of Meteorology.

Sime, which has about 220,000 hectares of land in Liberia as part of a concession to plant oil palm and rubber, may expand further into the African continent, including Cameroon, said Mohd Bakke. The company is planning “upstream and downstream” ventures for its plantation division, which represents 31 percent of revenue, he said, without elaborating.

The company has 522,000 hectares of oil-palm plantations in Malaysia and Indonesia, company data show.

Indonesia’s new export tax structure will make its refined palm oil cheaper compared with Malaysia, potentially hurting the local refinery business, he said.

“We need to identify buyers who are still keen to take our products based on what they consider to be good value,” he said. The industry would need to discuss measures with the government to reposition the business in light of the new taxes, he said.

Indonesia, the largest palm-oil grower, introduced a maximum tax of 10 percent on refined, bleached and deodorized palm oil, said Finance Ministry Decree signed Aug. 15. The highest tax rate for RBD palm olein will be 13 percent and for crude palm oil 22.5 percent. The new levels take effect Oct. 1.

Sime is building a refinery in Indonesia’s South Kalimantan which will have a processing capacity of 2,500 tons per day and is expected to be operational in 2013, Mohd Bakke said.