Refiners to pay less for palm in Malaysia’s top producing state, says paper
KUALA LUMPUR, Aug 27 — Refiners in Malaysia's top oil palm growing state of Sabah will pay millers less for edible oil from next month to preserve margins and better compete with Indonesia, the Business Times reported today, in a move likely to hit planters' revenues.
The daily newspaper cited IJM Plantations CEO Joseph Tek as saying that refiners in the Borneo island state want to more than double the discount on a tonne of crude palm oil to RM80-100 from RM40 ringgit.
The move is a reaction to top producer Indonesia slashing export taxes on processed palm last year to jump start its refining industry, allowing Malaysia's long-time competitor to offer cheaper shipments and grab market share.
“This higher discount is being introduced by the refiners and will mean millers get lower sales proceeds. It will eventually cascade through to planters as well,” Tek was quoted as saying.
“In a way, if this continues, it will affect IJM Plantations as well. We will make RM40 to RM60 less per tonne of crude palm oil that we produce from September onwards,” Tek said.
The current discount puts crude palm oil selling prices at RM2,970. With the new discount, prices would stand at about RM2,930 per tonne.
The discount system is unique to Sabah. It was imposed in the early days of Malaysia's oil palm expansion in the 1970s and 1980s when the state did not have any refineries and had to ship palm oil to mainland Malaysia for processing.
But the system persisted even as refiners sprang up on Sabah, with millers continuing to have no choice but to accept the “forced discount”.
Tek could not be immediately reached for comment but other Sabah millers confirmed that refiners will pay less for crude palm oil starting in September.
Affin Investment Bank said in a note to clients that firms with extensive plantations in Sabah will trim their margins by 1.3 to 2 per cent, although planters such as IOI Corp and KL Kepong may fare better as they own extensive refining operations as well. Other pure plantation stocks with a Sabah presence include Genting Plantations and Hap Seng Plantations. — Reuters