Palm Oil Industry

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#1
PUBLISHED APRIL 28, 2014
Sustainability: new ball game for palm oil firms

But higher bar set by Wilmar, Golden Agri won't have big immediate impact: analysts
BYANDREA SOH
sandrea@sph.com.sg @AndreaSohBT

In the last five months, two palm oil giants who together trade about half the global supply - Wilmar International and Golden Agri Resources - have declared that their sustainability policies would apply not just to their own plantations, but also to those of their suppliers - PHOTO: REUTERS
application/pdf iCONNo palming off
[SINGAPORE] The palm oil industry has reached a tipping point.
In the last five months, two palm oil giants who together trade about half the global supply - Wilmar International and Golden Agri Resources - have declared that their sustainability policies would apply not just to their own plantations, but also to those of their suppliers.
About half of all fresh fruit bunches bought by Wilmar come from third parties, while the amount for upstream palm oil player Golden Agri is much lower, at 7 per cent.
The two palm oil groups' resolve to set a new sustainability standard in the industry has prompted others like First Resources to look into doing the same.
"Although our third-party purchases are small, we will be reviewing our procurement policies with the aim of incorporating our sustainability values into our supply chain," said a First Resources spokesman.
The pressure from non- governmental organisations (NGOs) such as Greenpeace has been mounting for a decade, but the catalyst for these recent developments was the changing tide of sentiment among consumer goods firms.
A month before Wilmar's announcement last December, Unilever - the world's largest user of palm oil at 1.5 million tonnes a year, or 3 per cent of global production - committed to buying only palm oil that can be traced to known sources by the end of this year.
The Anglo-Dutch group uses palm oil in products such as its Dove shampoo and Flora margarine.
Unilever's decision follows similar commitments by Ferrero, Nestle, Kellogg and L'Oreal to buy certified palm oil, or oil that comes from plantations managed and certified according to certain sustainability criteria.
Since then, the tide has swept along more palm oil buyers. M&M maker Mars and Colgate-Palmolive late last month announced their plans to use only certified palm oil by the end of next year; Procter & Gamble, which was recently the target of a global Greenpeace campaign, committed on April 8 to ensuring no deforestation in its palm oil supply chain.
Europe, the third-largest import market for palm oil after India and China, has led the demand for sustainability in the palm oil sector. In France, food companies have started using "palm oil-free" labels as a badge of honour.
Concern is growing that the palm oil industry will suffer if it remains deaf to these demands from its customers.
Said Wilmar CEO Kuok Khoon Hong at its results briefing in February: "If this clash continues, maybe the EU governments will stop using palm oil for biofuels under pressure from all their consumers. You can see some very big companies already saying that they don't use palm oil. It's a selling point (for them)."
"If they stop using palm oil for biofuel, if all the big consumers there stop using palm oil, crude palm oil (price) may drop by US$200-300 a tonne. What's the point of planting another 15,000 hectares (then)?" he asked.
Wilmar has therefore decided to take the lead in the industry. "We're hoping for other companies, other plantations to join us, to try to make the whole industry sustainable."
But these changes will not come without cost, say analysts.
While the impact on the profitability of palm oil firms would not be significant in the short term, "(it) could slow down their ability to grow due to the more stringent policies that they have adopted", said CIMB analyst Ivy Ng.
A Wilmar spokeswoman conceded that its business will be affected in the short term. "We recognise that this is something we have to do, both for the business and the environment. We believe the long-term benefits will outweigh the challenges facing us in the short term," she said.
Committing to sustainability, however, is only a first step, said Greenpeace head of forest campaign Bustar Maitar. "The next step - and a big one - after that is to actually implement the policy itself."
This will be important in gaining the trust of the market, said Scott Poynton, executive director of Forest Trust, a Swiss non-profit organisation. "There's still a lot of cynicism and mistrust about these companies. If they can prove that they are not just greenwashing, they will start winning confidence back from the broad market and the NGO community."
Challenges abound for palm oil firms. For one thing, the definitions of peat land and high carbon forest are hazy. Standards are also always moving higher.
In view of this, Carey Wong, an analyst at OCBC, says a continual raising of the bar may bode well for the industry ultimately.
"We believe it is a good thing - it raises the standard for the whole industry and makes them appear on a par with practices in the Western world," he said.
Customers who are more discerning are also willing to pay more, he added. "So that could still be a 'win-win' for the companies that are RSPO-certified, for example." RSPO, or the Roundtable on Sustainable Palm Oil, is an industry body that promotes the use of sustainable palm oil products.
And there may be no two ways about it - those who refuse to adapt will be left behind. Said Mr Poynton: "In time, the buyers will desert them. The change is coming. Their resistance will ultimately be undermined."
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#2
PUBLISHED APRIL 28, 2014
Next steps: forest restoration service, changes to supply chain
BYANDREA SOH
sandrea@sph.com.sg @AndreaSohBT

Australia-based New Forests, which manages funds in timberland and environmental markets, is looking to provide a service to restore degraded forests to their natural state - PHOTO: REUTERS
[SINGAPORE] At least one company has spied new business opportunities as momentum gathers for sustainable practices in the palm oil sector.
Australia-based New Forests, which manages funds in timberland and environmental markets, is looking to provide a service to restore degraded forests to their natural state.
Under the principles and criteria of Roundtable on Sustainable Palm Oil (RSPO), companies that have cleared land since November 2005 without assessing it adequately for its conservation value beforehand will have to develop a compensation programme, or be excluded from the RSPO certification programme.
The actual guidelines are still being worked out by a taskforce.
New Forests CEO David Brand told The Business Times: "Areas that have been cleared for oil palm, we can restore these for the habitats of endangered species and sell that conservation as a compensation mechanism to the companies that caused the impact."
In the US, paper and pulp companies initially tried to replant forests themselves, but eventually found it more efficient to use a service provider, he added. In what is known as mitigation banking, New Forests restores and manages habitats (or mitigation banks) such as wetlands, and sells credits associated with the environmental benefits of such an asset.
New Forests manages A$2.3 billion (S$2.7 billion) in assets and over 450,000 hectares of land and forests in Asia, Australia and the US. Its US$50 million Eco Products Fund, which is jointly managed with Equator Environmental, invests in mitigation banking.
"This is a very big business for us in the US," said Mr Brand, who sees demand for this taking off here in the next one to two years.
"We've been talking to (palm oil players) for three to four years now," he said, adding that these companies are now waiting to see what the final RSPO rules are before committing to such projects.
The fund manager has already started a biodiversity bank with the state government in Sabah, selling conservation certificates to individuals and companies which help to sustain the reserves.
Besides the restoration of forests, palm oil players say the next natural step for the industry to take towards sustainability is to build large-scale segregated supply chains for certified and non-certified palm oil.
Currently, even if plantations produce certified palm oil, it gets mixed in with the rest. Some firms such as Golden Agri-Resources, however, segregate certified palm oil for specific buyers who pay a premium.
But just as the recent change in Wilmar's policy had been many years in the making, patience will be needed for further progress.
"Change is not easy for many people. It will take some time," said RSPO secretary-general Darrel Webber. The industry will move towards it only if there is demand, he added. "I always tell people you cannot push the supply chain, you can only pull it."
And with many large companies having committed to use only certified palm oil by 2015, Mr Webber sees the 2014/2015 marketing year as a "phenomenal" milestone for the industry.
"You just combine these, plus the commitment by some countries, and there will be more demand coming from the US, Australia or New Zealand - there will be enough of a pull."
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#3
http://www.bloomberg.com/news/2014-09-02...overs.html

Palm Oil Seen Rebounding by Sime’s Dass as Demand Recovers
By Ranjeetha Pakiam Sep 2, 2014 3:41 PM GMT+0800

Photographer: Goh Seng Chong/Bloomberg
A Sime Darby Bhd. oil palm plantation stands in Selangor, Malaysia. Palm slumped into a... Read More
Palm oil will rebound from a five-year low as demand improves and record supplies of soybeans, which can be crushed to make an alternative oil, are absorbed, according to Sime Darby Bhd. (SIME), the biggest listed producer by market value. Futures advanced.

“Prices should bounce back by October, November,” Franki Anthony Dass, executive vice president of the Petaling Jaya, Malaysia-based company’s plantation division, said in an interview. “The bumper soybean crop will quickly drop,” said Dass, who’s been in the industry for more than 30 years.

Palm slumped into a bear market in July on swelling global supplies of edible oils, including a record soybean harvest in the U.S. Futures also dropped as demand for biofuels missed expectations and as forecasters reduced odds for the onset of an El Nino, which can disrupt supplies from Indonesia and Malaysia, the biggest producers. Standard Chartered Plc and CIMB Investment Bank Bhd. are among forecasters seeing a rebound in the oil, which is used in foods, cosmetics and fuels.

“For food and non-food usage, the versatility is for palm oil, so the demand will come back,” Dass said on Aug. 29, without giving a price forecast. The “good thing is that imports from China are growing, while India has stagnated. That is worrying. India and Pakistan must buy,” he said.

Futures on the Bursa Malaysia Derivatives, the global benchmark, fell to 1,914 ringgit ($604) a metric ton today, the lowest since March 2009, before rebounding as much as 1.2 percent to 1,952 ringgit. The contract for November was up 0.2 percent at 1,933 ringgit at 3:31 p.m. in Kuala Lumpur.

‘Make Money’

While the decline below 2,000 ringgit was unexpected and “worrying,” Sime’s average cost of production in Malaysia and Indonesia is about 1,400 ringgit a ton, according to Dass. “If the CPO price is at 2,000, we still make money,” he said, using the initials for crude palm oil.

Prices risk tumbling further to approach the cost of production, according to Dorab Mistry, director at Godrej International Ltd. Private-sector estates in Malaysia and Indonesia have costs of about 1,500 ringgit to 1,600 ringgit a ton, Mistry said in e-mailed comments to Bloomberg News.

Stockpiles in Malaysia may climb to 2 million tons as nationwide production rises in the peak-output months, said Dass, without giving a timeframe. Reserves stood at 1.68 million tons in July, according to data from the Malaysian Palm Oil Board. They last reached more than 2 million tons in March 2013.

Sime’s output of fresh-fruit bunches, from which the oil is crushed, will climb 10 percent to 15 percent this quarter from 2.47 million tons in the same period a year earlier, said Dass. Output in the year to June 30, may rise 3 percent to 5 percent, he said. That compares with a 7 percent drop in 2013-2014.

‘Limited Upside’

“What’s important is that we’re still seeing higher production and higher inventory,” said David Ng, a Kuala Lumpur-based derivatives specialist at Phillip Futures Sdn. “As long as we see this, prices have limited upside. Buyers are also waiting on the sidelines to see when they can get a bargain.”

Palm oil may trade in a range from 1,900 ringgit to 2,200 ringgit through to the end of the year, Mohd Bakke Salleh, Sime’s chief executive officer, told reporters on Aug. 29. Each 100 ringgit drop in the price, “translates into depriving ourselves of 250 million ringgit profit,” said Mohd Bakke.

Palm may rally to as much as 2,400 ringgit late in the fourth quarter as users rebuild reserves and biofuel demand rises, Ivy Ng, an analyst at CIMB, said in an Aug. 24 report. Prices may improve in the fourth quarter as inventories tighten, according to Abah Ofon, an analyst at Standard Chartered.

Record Crop

Soybean production in the U.S., the world’s top grower, will reach a record 3.816 billion bushels this year, the U.S. Department of Agriculture forecast on Aug. 12. World inventories before the start of the 2015 Northern Hemisphere harvests will rise to 85.62 million tons, the highest ever, the USDA said.

Soybeans fell to $10.1975 a bushel on Aug. 26, the lowest since September 2010, while soybean oil slumped to 31.96 cents a pound today, the lowest since March 2009. Soybean oil’s premium over palm was at $104.25 a ton today, below last year’s average of about $244, data compiled by Bloomberg show. The premium was below $100 for most of July and August.

With “the soybean bumper crop in the U.S., you see the discount between soybean oil and palm oil is below $100, so it doesn’t make palm oil that attractive,” said Dass. Still, soybeans are “not a perennial crop, so palm oil will always have the advantage,” he said.

To contact the reporter on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net Jake Lloyd-Smith, Ovais Subhani
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