Palm Oil Refiner on Expansion Trail

SINGAPORE: Singapore-listed palm oil refiner Mewah International is looking at Indonesia and China as potential sites for expansion as it expects demand for the commodity to outpace supply in the long term.

The company is currently building its fourth refinery in Sabah, Malaysia, which will boost its annual capacity by 19 per cent to 3.3 million tonnes when the US$60 million (RM181.80 million) plant is completed by the end of the year.

Chief financial officer Rajesh Chopra also said crude palm oil prices could fall by as much 13 per cent in the short term after a strong rally, but long-term bullish sentiment for the commodity will be intact due to strong demand.

“Palm oil demand growth is expected to outpace supply growth and the same should put pressure on prices in the long run,” Chopra said yesterday.

“Prices have increased sharply in the last six months, though there has been some easing up recently. There could be a further price correction in the near term from current levels of around RM3,600 to probably RM3,200 or RM3,300 before they start increasing again.”

Malaysia’s benchmark palm oil price has rallied from a low of RM1,331 a tonne during the 2008 financial crisis to as high as RM3,967 last month. It touched a two-week top of RM3,699 yesterday.

“Correction has been due to demand easing after the festival season was over and the industry expecting better weather this year than last year,” said Chopra.

Mewah, which raised US$213 million (RM645.39 million) in its Singapore listing last year, sold 77 per cent of its 3.85 million tonne sales volume in 2010 to business customers in bulk while the rest were sold as consumer products.

Aside from the Malaysian refinery, the company is constructing two packaging facilities in China, to be completed by 2013.

“Refinery in China is a matter of time.

We will start with packing plants and timing of refinery will depend upon overall industry developments and our competitive position,” Chopra said without giving a timeframe for the expansion.

Mewah has been in China for eight years, but the world’s most populous nation has only contributed less than one per cent of its total revenue.

Major players like Wilmar International , the world’s largest palm oil producer, and Cargill dominate China’s edible oil market, but Beijing’s price controls meant to rein in inflation are putting pressure on their margins. This has prompted Mewah to supply its products to corporate customers, where the price is not regulated by the government, said Chopra.

Shares of Mewah have fallen nearly 5 per cent this year, underperforming a 4 per cent drop in the broader market. But it has fared better compared with bigger palm oil players, like Wilmar and Golden Agri which have dropped 6.8 per cent and 14.4 per cent respectively. – Reuters

Source : Business Times

Leave a Reply