February 29, 2012 / 7:00 AM / 8 years ago

INTERVIEW-UPDATE 1-First Resources eyes 10 pct CPO output rise, rubber

* Expects CPO price to be supported at 3,000 ringgit/tonne

* Aims to maintain $835 average CPO selling price in 2012

* Hopes to plant 40,000 hectares of rubber in 7-10 yrs (Adds details)

By Eveline Danubrata and Mark Tay

SINGAPORE, Feb 29 (Reuters) - Singapore-listed First Resources Ltd could produce 10 percent more crude palm oil from its Indonesian plantations this year, while the company also plans to diversify into rubber, its chief executive said on Wednesday.

First Resources, which has a market capitalisation of $2.2 billion, produced 452,113 tonnes of crude palm oil (CPO) in 2011, a 20 percent increase from a year earlier.

Around 35,500 hectares of oil palm trees are becoming more productive and will drive output growth this year, Chief Executive Officer Ciliandra Fangiono told Reuters in an interview.

CPO prices are likely to be supported at around 3,000 ringgit ($1,000) per tonne in the next 3-6 months on the back of firm demand, he said ahead of Bursa Malaysia’s annual Palm and Lauric Oils Conference & Exhibition Price Outlook 2012 in early March.

“In the near-term, prices seem to be very well supported. Soya bean oil prices are very strong and that’s dragging up palm oil prices. Strong fuel prices are also driving palm oil prices up because of the bio-fuel angle,” he said.

Benchmark May palm oil futures on the Bursa Malaysia Derivatives Exchange have gained more than 6 percent so far this month and were trading at 3,271 ringgit per tonne on Wednesday.

“In the long run, the need for soft commodities is still very strong and is less prone to boom-bust cycles because there is an underlying need and that is growing because of emerging markets’ growth,” Fangiono said.

First Resources’ average selling price for CPO, after accounting for export tax, was $835 per tonne last year and Fangiono said he hopes to maintain this level in 2012.

Processed palm oil is often used for cooking oil and margarine. Palm oil is also a key ingredient in soaps, cosmetics and plastics.

Many analysts favoured First Resources’ relatively young plantations, with an average age of around eight years, which means the trees can produce for a longer period of time compared to other players with more mature estates.

Oil palm trees aged eight to 17 years are considered prime as this is the period when output is greatest. Overall, the trees have a productive life of around 20 years.

Out of 13 analysts covering the stock, five have a “strong buy” rating and eight have a “buy” call, according to Thomson Reuters data.

First Resources shares, which were flat at S$1.84 by 0639 GMT, have risen about 22 percent so far this year, outperforming a 13 percent rise in the broader Straits Times Index.

First Resources competes with Singapore-listed palm oil firms Golden Agri-Resources Ltd and Indofood Agri Resources Ltd.

REFINING CAPACITY, DIVERSIFICATION

Fangiono said Indonesia’s move to slash export taxes for refined edible oils has currently made the cost of exporting olein, a key component of cooking oil, cheaper than that for CPO by around $90 per tonne.

First Resources is spending around $35 million to boost its refining capacity in Sumatra, Indonesia, to 850,000 tonnes per annum by next year, up from 250,000 tonnes.

The firm currently has nine mills which process fresh fruit bunches into CPO and palm kernel, as well as a refinery, fractionation and biodiesel complex in Indonesia.

“The export tax structure has made refining a lot more lucrative and has a dollars and cents impact on our business for sure. Refining margins were very thin before the export tax change,” Fangiono said.

“The policy was intended to encourage more refining and further downstream investments within Indonesia. To that extent, I think the policy has been a huge success.”

Other players are raising their refining capacity in Indonesia to take advantage of the new tax structure.

Golden Agri plans to nearly double its Indonesian refining capacity to 2.6 million tonnes over the next two years, a top official told Reuters earlier this week.

First Resources is also diversifying into rubber, with a target of planting 2,000 hectares this year, and Fangiano said the company hopes to have 40,000 hectares of rubber planted mostly in Kalimantan within the next 7-10 years.

By then, Fangiono said rubber could potentially make up 10-15 percent of the firm’s earnings. ($1 = 3.0105 Malaysian ringgit) (Editing by Himani Sarkar)

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