12/2/06 (The Edge Daily)  -  Carotech Bhd is stepping up its biodiesel production with a RM100 million investment in a new plant in Lumut, Perak to boost its earnings.

Its managing director David Ho said the proposed plant would increase its production capacity from crude palm oil (CPO) in the next two years. The first phase, to be completed by the second quarter of 2006, will have a daily production capacity of 150 tonnes.

Speaking to FinancialDaily, he said the second phase would increase the output by least another 150 tonnes. “We will make a decision by the third quarter of 2006 on what the capacity should be,” he added.

Early this month, Carotech had proposed to acquire a 12.84ha piece of land in the Lumut Port Industrial Park for RM9.79 million, earmarking it for the new plant.

“The new plant starts operations this year but it’s unlikely to benefit the company until the first or second quarter of 2007,” Ho said.

He added that the new plant would be financed by internal cash and bank borrowings. “We have already secured most of it. We are quite confident of raising the funds,” he said.

Carotech, a 51% subsidiary of Hovid Bhd, is involved in the extraction and processing of palm oil nutrients for pharmaceutical, phytonutrient and oleochemical products.

The company produces unprocessed methyl ester, which can be used as biodiesel — a form of environment- friendly fuel.

According to Ho, there is high demand for biodiesel in countries such as the United States, Canada, India and the European Union, where biofuel makes up about 5% of the total energy consumption.

In fact, he said, Carotech’s largest markets are the US and Europe.

Meanwhile, Malaysia would start implementing a similar quota of 5% usage in 2007, which translates into a demand of about 500,000 tonnes of biodiesel a year, he said.

“The capacity (to meet such demand) has to be built this year,” he said.

While the company was still getting a lot of enquiries on its biodiesel products, it was unable to sign on more new customers this year due to its limited capacity, he added.

Ho said Carotech is also investing up to RM30 million to double the daily CPO processing capacity of its existing Chemor plant in Perak from the current 45 tonnes when the expansion is completed by the second quarter of 2006.

Although biodiesel is expected to contribute to more than half of Carotech’s revenue, the company would not focus on this product only, he said.

“We will not totally forsake the oleochemical industry,” he said.

Ho said the company wants to go further downstream as methyl ester is an intermediate product. Methyl ester can be sold as biodiesel or bleached for use in the oleochemical industry.

“That’s the difference between us and other biodiesel players — we got one foot in biodiesel and another in oleochemical. We are better prepared to face the ups and downs of the biodiesel market,” he said.

To stay ahead, Carotech has allocated up to RM5 million for research and development in 2006 compared with RM4 million previously.

Among others, it would be invested process technology to develop more efficient and environment-friendly ways to extract compounds from CPO, he said.