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More oil palm firms expected to invest substantial
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Thursday, January 24, 2002 (The Star) - MORE Malaysian oil palm plantationcompanies are expected to invest aggressively abroad, once the outcome ofearlier investments by at least 40 local companies in Indonesia, SolomonIslands and Papua New Guinea begin to bear fruit.Affin-UOB Securities Sdn Bhd said in its January 2002 Investment Reviewreport that the continued expansion by palm oil producers would beencouraged by oil palm crops having a much higher yield per ha than otherseed oils and the commodity’s relatively cheaper production costs comparedwith other vegetable oils.The world demand for palm oil is expected to increase from the present 20million tonnes per year to 40 million in 2020.Affin-UOB Securities said a large portion of the demand would continue tocome from Indonesia, India, China, Pakistan and Malaysia.As demand grows, Oil World projects palm oil would become the leadingedible oil in 2012.“If this demand is to be met, 300,000ha of new planting is required yearlyover the next 20 years,’’ Affin-UOB Securities said, adding that amajority of new land is expected to come from within Indonesia wherelabour and land are plentiful.In Malaysia, the land availability particularly in peninsular Malaysia isvirtually approaching saturation point with new plantings mostly inSarawak and Sabah.

Of the 3.4 million ha planted in Malaysia, 61% are located in thepeninsula and the balance in Sarawak and Sabah.Affin-UOB Securities said, however, that Indonesia offered better growthopportunities as land cost was lower.For example, Kumpulan Guthrie Bhd paid US$3,700 per ha for planted estatein Indonesia while IOI Corp Bhd paid US$5,000 per ha for unplanted butcleared jungle land in Pahang.There is abundant land for future expansion in Indonesia as well as alarge ready palm oil consuming domestic market with a population of morethan 210 million.The stockbroking company said Indonesia’s production cost was also thecheapest among all the palm oil producing countries, with Kumpulan Guthrieestimating it to be 30% lower than in Malaysia.On the other hand, Affin-UOB Securities said that with the exception ofKumpulan Guthrie, most Malaysian companies are rather cautious with theirexpansion into Indonesia as “the coast is not all that clear” despite thefact that the economic advantages it offered were evident.“There are still some obstacles for would-be investors which cancontribute to higher risks,’’ it added.The challenges faced by plantation companies in Indonesia include aninconsistent crude palm oil (CPO) export tax policy, regulations limitingthe plantation concession sizes, difficulties in obtaining credit,inadequate palm oil subsidies particularly through periods of priceslumps, and unstable social and political conditions.Malaysia has a total planted area of 3.4 million ha while Indonesia is notfar off with 3.1 million ha.As Indonesia’s plantings are younger, Malaysia’s CPO output is much higher– at 10.8 million tonnes – against Indonesia’s 6.9 million tonnes in 2000,Affin-UOB Securities said.Both countries accounted for 82% of global palm oil production in 2000,with Malaysia’s share at 50% and Indonesia 32%.Affin-UOB Securities expects Indonesia’s palm oil production to continueto grow rapidly and the country is seen to have the potential to overtakeMalaysia as the world’s leading producer of palm oil.This is due to the younger age profile of its crop, its vast land bank,favourable climate and soil conditions, the stockbroking company added.