• On Day 1 of the Palm Oil Conference, the speakers presented the challenges facing the palm oil industry and the outlook for the oleochemical industry.

• Dato’ Lee Oi Hian, CEO of KL Kepong said that palm oil yields in Malaysia have declined by 15% from 1999 to 2022. In contrast, oil yields for EU rapeseed and US soybean have improved by 15% and 41% respectively. Reasons for falling palm oil yields include poor management and replanting standards. There is a need to upgrade replanting standards and planting materials. Also, the palm industry in Malaysia needs to have transformational research on ganoderma disease and the use of microbes to reduce fertiliser usage.

• Dato’ Lee Yeow Chor, Group MD and CEO of IOI Corporation said that a strategy to transform the downstream industry is to focus on high-value niche markets. These markets include the infant nutrition and pharmaceutical industries. Profit margin for oleochemicals used in the infant nutrition industry can be as high as US$1,000/tonne vs. US$25/tonne for cooking oil. Profit margin for the pharmaceutical industry is also high at US$3,000/tonne or US$3/kg.

• To protect palm smallholders in Malaysia, Dato’ Mohd Nazrul, CEO of FGV Holdings suggested that FELDA, FELCRA and RISDA should be merged. Also, there should be different sustainability standards for smallholders.

• Dato’ Carl Nielsen, chief executive director of United Plantations said that there should be a level playing field between palm oil and other vegetable oils. In addition, RSPO’s (Roundtable for Sustainable Palm Oil) high standards have discouraged 75% of palm growers from becoming members. RSPO has the world’s strictest sustainability criteria, exceedingthose of soybean and rapeseed oil. MSPO (Malaysian Sustainable Palm Oil), ISPO (Indonesian Sustainable Palm Oil) and RSPO should work together towards a shared goal.

• An oleochemical expert from Frost & Sullivan forecasts the revenue of oleochemical industry to grow at a CAGR of 5.4% from 2023F to 2028F. Oleochemical sales volume is projected to rise at a CAGR of 3.4%. He expects selling prices of oleochemical products to increase over the coming years. The biggest driver of the oleochemical industry is expected to be the personal care and cosmetics segment. The latter is anticipated to account for 33% of the oleochemical industry’s revenue in 2028F vs. 30% in 2022.

• He also said that Asia Pacific leads in market share and growth rates. Several industries including soap have moved to Asia Pacific due to better logistics and availability of raw materials. The North American industry is mature while the EU is heading towards maturity.

• In the short-term, EU anti-dumping duties on fatty acids from Indonesia will be positive for EU oleochemical producers but negative for Indonesia’s producers. We believe that Malaysian oleochemical producers such as IOI and KL Kepong will benefit from the anti-dumping duties on Indonesia’s fatty acid producers.

Source: AmInvest Research - 8 Mar 2023