| SINGAPORE, Sept 5
SINGAPORE, Sept 5 Indonesian palm oil companies,
among the world's biggest, are rushing to bump up capacity to
produce higher-value chemicals made from the vegetable oil by as
much as a third, hoping to escape the paper-thin margins in
their refining business.
Malaysian rivals Sime Darby Bhd, IOI Corp
and Kuala Lumpur Kepong Bhd are already
active in the $20 billion market for basic oleochemicals. Now
their Indonesian counterparts such as Golden Agri-Resources Ltd
are catching on.
Driving the Indonesians are shrinking crude palm oil
refining margins, which plummeted to near zero earlier this year
as refining capacity hit a record.
Tax changes in 2011 discouraging crude palm oil exports have
sparked a wave of capacity building to make refined palm oil
products, which enjoy lower export tax rates than crude palm
oil. Now, refined palm oil products are hardly profitable.
But the race to build plants for oleochemicals, processed
from refined palm oil products, is starting to stoke concerns of
looming oversupply in the short term.
"We are concerned about the additional capacity coming
online in Indonesia," said Tan Kean Hua, executive director of
IOI Oleochemical Bhd and chairman of Malaysian Oleochemical
Manufacturers Association. "If the additional capacity grows to
a very large number, that will affect margins."
In Malaysia, production of basic oleochemicals on average
enjoys margins of 8-12 percent, and production of derivatives
from these chemicals has margins north of 20 percent, Tan said.
Indonesia is estimated to add 500,000 to 1 million tonnes of
oleochemicals capacity next year, bringing the total to 3.5-4
million tonnes, compared with the current 2.5 million tonnes of
capacity in Malaysia, Tan added.
He was confident, however, that Malaysia's experience in the
industry will give them an upper hand in the competition.
Golden Agri, the world's second-largest palm oil planter by
acreage after Malaysia's Sime Darby, plans to increase
its oleochemicals capacity fourfold to 376,000 tonnes in two
Basic oleochemicals are divided into fatty acids and fatty
alcohols. They can be further processed into products that end
up in soaps, detergents, shampoos and other personal care
products, whose long-term prospects are bright thanks to booming
economies in emerging markets in Asia and elsewhere.
Golden Agri plans to add fatty alcohols to its oleochemicals
portfolio by 2016, in addition to fatty acids that it already
"It is also part of our growth strategy to widen our product
portfolio and shift our production mix to higher value-added
products," said Rafael Concepcion, Jr., Golden Agri's chief
financial officer, expecting the oleochemicals sector to grow
3-5 percent annually.
Companies that are further along the oleochemicals path are
now making their foray into the more sophisticated derivative
products, with competition in the basic oleochemicals market
This year, Wilmar International Ltd, the world's
biggest palm oil processor, announced plans to acquire a
Malaysian biodiesel and glycerine refinery, as well as a
Europe-based surfactant business. It has also formed a joint
venture in Ethiopia to produce specialty fats, soaps and
Wilmar declined to be interviewed for this article.
"Most of us are on the same track. We are going one step
downstream to the derivatives business," said Tan of IOI.
Indonesia and Malaysia currently account for nearly half of
the global capacity for basic forms of oleochemicals, according
to Chris de Lavigne, global vice president of consulting at
Frost & Sullivan.
The two countries supply around 85 percent of the world's
(Editing by Ryan Woo)