Pursuit to stay efficient and cost-effective


  • Business
  • Saturday, 05 Jan 2008

For this year, Hap Seng Consolidated Bhd intends to enhance the level of crude palm oil and palm kernel production by increasing its planted land bank, says group managing director Edward Lee Ming Foo. Boustead Holdings Bhd is looking into opportunities where investment into biofuel and biodiesel can complement the value chain, according to its group managing director Tan Sri Lodin Wok Kamaruddin. 

EDWARD LEE MING FOO Group managing director Hap Seng Consolidated Bhd 

Your views on the escalating risks in the plantation sector’s crucial growth parameters such as the scope of expanding oil palm areas, control of harvesting costs and maintaining high yields? 

The group has always adopted a comprehensive approach in how we manage cost and more importantly how it affects profitability.  

Moreover, the group adopts many industry best practices in our plantations and mills to improve our yields and maximise our resources. 

Edward Lee Ming Foo

On this note, we will only expand in strategic locations at the right time to complement our existing growth strategy.  

This is further complemented by our well-integrated operations that enable us to have better quality control of our products along the supply chain. 

We will also monitor our harvesting costs and improve production levels in our pursuit to remain an efficient and cost-effective plantations player. 

To date, our strategies have served us well as evidenced by our high fresh fruit bunch yields at 25.37 tonnes per hectare per year and low cost of production at RM672 per tonne for financial year ended Jan 31, 2007.  

Your 2008 growth outlook for the biofuel/biodiesel industry in Malaysia amid the international trade limitations, higher feedstock (CPO) prices, sustainability and food versus fuel debate? 

Despite the challenges, we anticipate demand for biofuel/biodiesel to grow on the international front in countries such as Germany, which is one of the world’s most developed biodiesel markets.  

High energy prices and environmental concerns to reduce greenhouse gas emissions are also strong factors which have led to countries seeking alternative fuel sources and this translates to greater interest in biodiesel.  

As one of the world’s largest producers of palm oil, the biofuel/ biodiesel industry in Malaysia has the potential to grow and make positive contributions to the country’s economic growth and development.  

The introduction of the National Biofuel Policy by the Government also further emphasises the demand for biofuel as a means to reduce the country’s fuel import bill.  

Do you agree that the structural changes in the global commodity supply and demand pattern i.e. biodiesel market, the fight for hectarage to plant corn for ethanol instead of soybean and rape seed in the US and South America, trans-fatty acid concerns, and China and India relaxing their palm oil import tariffs, will lend support to higher CPO prices in 2008? 

Structural changes on the global front will certainly play a key role in ensuring CPO prices remain high in 2008.  

On this note, the outlook remains bright as palm oil is highly sought after in various industries, namely food and manufacturing, and with the emerging trend in adopting biodiesel/biofuel as an alternative fuel source.  

Furthermore, its lower price compared with other major oils, especially soybean oil, has boosted its competitiveness in the global market.  

As such, the rising trend for palm oil consumption is expected to continue with increased demand from China and India and expansion of palm oil biofuels programmes in selected countries.  

Your company’s strategies in 2008 and the rationale behind them i.e. overseas expansion, refineries, mills, biomass, biodiesel projects or carbon credit initiatives. 

For 2008, we intend to enhance the levels of our CPO and palm kernel production by increasing the area of our planted land bank. This will be made possible through new acquisitions and development of our existing undeveloped 1,549ha as at July 2007.  

We will remain focused on our growth strategy by purchasing planted or mature plantations in strategic locations or enter into new joint ventures with viable partners.  

The current volatile CPO prices ranging RM2,900 to RM3,000 per tonne have made it very difficult for planters to lock in their CPO selling prices. At what price would your company be “comfortable” for FY2008 and FY2009?  

The group sells its CPO in both the spot market and through forward sales in Malaysia. Spot sales, which are conducted at current market prices, can be volatile as the price fluctuates according to world edible oil commodity prices.  

On this note, we sell a portion of our expected annual production on a “forward basis” to hedge against this volatility. However, the group will continue to monitor market trends closely to ensure we are able to enjoy the CPO prices at an optimum level. 

TAN SRI LODIN WOK KAMARUDDIN Group managing director Boustead Holdings Bhd  

Your views on the escalating risks in the plantation sector’s crucial growth parameters, such as the scope of expanding oil palm areas, control of harvesting costs and maintaining high yields? 

These challenges are part and parcel of the oil palm business. The Boustead group has over the years placed great importance on reducing operation cost while enhancing yields as oppose to expanding our planted areas. By focusing on efficiencies, we have been able to extract greater margins for our plantation division.  

Tan Sri Lodin Wok Kamaruddin

The group has implemented several plans of action to address the issue of cost control.  

The implementation of the precision farming technique has enabled us to be more precise in the application of fertiliser and thus, more cost efficient.  

Mechanisation of field operations, such as fertiliser application and in-field collection, has yielded positive results in improving land-labour ratio and workers’ productivity.  

Our focus on using clonal oil palm material and future use of new compact hybrid palms should ensure a higher yield.  

Your 2008 growth outlook for biofuel/biodiesel industry in Malaysia amid the international trade limitations, higher feedstock (CPO) prices, sustainability and food-versus-fuel debate? 

The “attractiveness” of biofuel usually increases with rising fuel oil prices. With soaring oil prices currently, there is naturally a need to turn towards alternatives such as biofuel or biodiesel products.  

We expect crude palm oil (CPO) prices to remain high and the biodiesel industry to experience tangible growth. We are looking into opportunities where investment into the biofuel/biodiesel industry can complement and extend our value chain. 

The biofuel industry is positioned to be an important factor for the potential increase in demand for palm oil. However, we are more bullish on palm oil’s prospects in the edible oil industry given the tightening demand of other edible oils, such as rapeseed and soybean, as well as palm oil being a healthier alternative. 

Do you agree that the structural changes in the global commodity supply and demand pattern i.e. biodiesel market, the fight for hectarage to plant corn for ethanol instead of soybean and rapeseed in the US and South America, trans-fatty acid concerns, and China and India relaxing their palm oil import tariffs, will lend support to higher CPO prices in 2008? 

These factors have and will continue to play a role in the ever-increasing demand for palm oil. With increased demand and sustained inflexible supply, we expect CPO prices to remain firm in 2008 and this will bode well not only for the group but also for a palm oil producing country like Malaysia.  

Your company’s strategies in 2008 and the rationale behind them. 

We are constantly on the lookout for opportunities to expand our land bank both locally and overseas provided they are complementary to our existing operations or are economically viable. 

Efficiency has and will continue to be our modus operandi for success. The group aims to continue to focus on reducing cost while enhancing yield by employing technology innovations into our operations and processes. 

One of these innovations is the use of clonal oil palms developed by our associate company, Advanced Agriecological Research Sdn Bhd (AAR).  

These clones, propagated via AAR’s tissue culture lab, which is the largest of its kind in the world, are able to provide better oil palm yield as well as a significantly higher oil extraction rate which could improve oil production by more than 20%.  

AAR has also developed a new compact hybrid palm which will allow for a 20%-30% higher density planting and result in a commensurate increased in fresh fruit bunches yield per hectare. 

AAR has also embarked on molecular research of oil palms in collaboration with local and foreign research institutions to enhance and improve on our hybrid palm breeding programme and to protect the IP rights of AAR’s genetic planting material. 

Moving forward, we will continue to stay firm to our good agricultural practices which provide us with guidelines towards sustainable agriculture and subscribing to the criteria and principles prescribed by the Roundtable on Sustainable Palm Oil to produce a quality product following accepted best management practices.  

We are currently looking into the utilisation of the extensive biomass produced by the oil palms into value-added products or for energy conversion to maximise returns from our estates. 

We have developed and are implementing a zero-waste zero-discharge system to convert our palm oil mill effluent and empty fruit bunches from our palm oil mills into organic fertiliser.  

This system forms part of our corporate social responsibility (CSR) programme and will not only protect our environment by a zero-effluent discharge by our palm oil mills into our waterways but will also qualify for carbon credit due to the reduction in green house gases through the use of this technique. 

Another CSR programme is our involvement in the development of Native Customary Rights land together with Sarawak’s Land Custody and Development Authority with the support of Sarawak Ministry of Land Development.  

The investment has yielded early positive results in alleviating the economy of not only the participating landowners but also the surrounding community.  

The current volatile CPO prices from RM2,900 to RM3,000 per tonne have made it very difficult for planters to lock in their selling prices. At what price would your company be “comfortable” with? 

We are happy with the current price range and market analysts are of the consensus that CPO prices would be well supported at RM2,400. Forecasting future prices is difficult as external factors, like weather and trade barriers, will significantly influence prices in addition to the supply and demand factor.  

We will continue to adopt a flexible marketing strategy for our CPO by judiciously adjusting our forward and spot sales percentages to meet the existing market price trend. During a high and upward trending CPO market we will adopt a policy skewed more towards spot sales and likewise increase our forward sales when CPO prices are likely to turn south. We should break-even even if CPO prices fall to around RM950 per tonne.

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