Sarawak sees improving CPO refining margins, shortage in milling capacity

KUCHING: Amid a season of high production and an environment of tightened capacity, refining margins in Sarawak for crude palm oil (CPO) players are improving on the back of shortage issues seen in milling capacity.
OSK Research Sdn Bhd (OSK Research) analyst Gan Jian Bo highlighted that refining margins in Sarawak substantially improved in the final quarter of 2012 which was a stark contrast to the challenging environment seen the quarter before.
Gan noted that the third quarter of 2012 was marked with instances of negative margins for CPO players.
“Moving forward, we believe CPO production growth in Sarawak will continue to outpace that of the country in 2013 due to its relatively late commercial planting initiative (hence, younger trees), exacerbating the mismatch in production and refining capacity,” highlighted Gan.
“So far, Sarawak has five refineries with a total capacity to process 2.4 million tonnes of CPO annually.
“Production within the state topped 2.9 million tonnes in 2012.” Gan went on to note that similar issues were occurring at the milling level as the state government hoped to prevent the milling overcapacity situation seen in Peninsular Malaysia and Sabah.
“No independent millers are thus allowed in Sarawak, with each company needing to operate at least 5,000 hectares (ha) of planted area before being given a license to construct a CPO mill,” the analyst added.
“While the mill would be sufficient to accommodate its own FFBs and some external crops, severe underestimation of FFB production from smallholders within the state (those with less than 5,000 ha planted area) is causing shortages in milling capacity.”
Meanwhile, the OSK Research analyst noted that oil palm planted land was currently going at a cheaper price amid soft CPO prices.
“Asking prices for planted oil palm estates in Sarawak have come off its peak recently amid weak CPO prices.
“A planted peat area previously calling for RM60,000 per hectare (ha) is now available at RM45,000 per ha.
“Unplanted agricultural land prices, in contrast, have risen to RM12,000 per ha from the RM7,000 to RM10,000 per ha seen when CPO prices breached RM4,000 per tonne in early 2008.”


Read more: http://www.theborneopost.com/2013/01/23/sarawak-sees-improving-cpo-refining-margins-shortage-in-milling-capacity/#ixzz2InIYEk55