Palm Oil Fortune - Vol9 September 2008

The vote on 11 2008 by the European Parliament's industry committee lowers the climate change goals agreed on by EU leaders last year to try to cut carbon dioxide (CO2) emissions. The EU lawmakers voted to cut their ambitious target for biofuels use by 10 per cent of the road transport needs by 2020.

The overall aim is for the EU to draw 20 per cent of all its energy from renewable sources by 2020. European Union governments pledged in March last year to increase the use of biofuels in transport to 10 per cent by 2020, with the optimism that energy derived from crops would provide a low-carbon way to power vehicles. An earlier target calling for 10 per cent of all transport fuel to come from renewable sources, but silent on the type of feedstock or raw material to be used to produce the biofuel, became the controversial element of the proposals. But even before turning the goal of the EC into legislation, there have been criticism and reports that highlighted the negative consequences of the target. Even a report prepared for OECD in September 2007 warned that converting crops into energy risked raising food prices and the push to expand the use of biofuels could result in clearing of forests.

These debates prompted the EC to reconsider its mandate laid down in 2003

and its subsequent ambitious target to boost the use of biofuels to 5.75 per cent by 2010 and 10 per cent by 2020, amid strong criticism by the green movement. The Commission was also pressured by calls to introduce a stricter standards for biofuel or to give up mandatory transport biofuel targets altogether.

Committee votes to add second generation biofuel component to EU biofuel targetThe Committee was led by Luxembourg Green MEP Claude Turmes, who proposed the legislation through the committee. The main contention adopted by the Parliament's Industry and Energy Committee on Sept 11 was that it would require 40 per cent of the EU's 10 per cent biofuel goal to be met from "non-food and non-feed competing" biofuels or from green electricity and hydrogen. This means that the 5.75 per cent target for 2010 would be replaced by a five per cent target for 2015, of which only four percentage points can come from agricultural biofuels. Second- generation biofuels or other fuel and power technologies, such as hydrogen fuel cells, would have to make up the rest

The committee also approved a mid-term goal that five per cent of the fuel used in road transport fuel should be from renewable sources by 2015, of which a

fifth should be from alternatives to biofuels from food crops. It also approved a major review by 2014 to assess how the 2020 target should be achieved in light of technological advances, and whether it was attainable at all.

Strict sustainability rules The report, also specifies that traditional first-generation biofuels would only count towards the target if they meet strict sustainability criteria. These biofuels should offer at least 45 per cent carbon emission savings compared with fossil fuels. This percentage is much higher than the 35 per cent savings originally proposed by the Commission and would rise to 60 per cent in 2015.

The Green MEP Claude Turmes who led in the negotiations within the committee was quoted as saying the maintenance of a binding target for biofuels is a bitter pill to swallow, but the committee has at least strengthened the safeguards against the damaging impact of biofuels in this directive.

TM

Malaysia Palm Oil. A Gift From Nature. A Gift For Life

MALAYSIAN PALM OIL COUNCIL KKDN PP 14669/05/2009 VOL: 9 2008

EU Panel

Scales DownBiofuel Targets

The Union’s change of heart was due to blame that biofuels had contributed to the massively increased cost of food.

DIRECTOR

Wira Adam [email protected]

MANAGER

Sum Kum Mooi [email protected]

Muhammad Kharibi Zainal [email protected]

MARKET ANALYSTS

Asia Pacific Desmond Ng Kok Hooi

[email protected]

South Asia Fatimah Zaharah Md Nan

[email protected]

Middle-East Norhaznita Husin

[email protected]

Africa Lim Teck Chaii

[email protected]

Europe Sum Kum Mooi

[email protected]

Americas Fatimah Zaharah Md Nan

[email protected]

For more information, please contact Tel : 603 - 7806 4097Fax: 603 - 7806 2272

MARKETING & MARKETDEVELOPMENT DIVISION

(Continued on page 10)


Malaysian Palm Oil FORTUNE 3

Vietnam’s vegetable oil processing industry enjoyed prolific growth in the 1990s. The annual growth of the industry exceeded 10 per cent – a testament to the country’s economic growth. It was during this period that two joint ventures came on-stream and significantly boosted the production of vegetable oils in the country. Its vegetable oil processing capacity also saw expansion in recent years to cater to increased demand.

Three major companies dominate Vietnam’s vegetable oil processing industry - the National Company for Vegetable Oils, Aromas and Cosmetics of Vietnam (Vocarimex), Cai Lan Oils and Fats Industries Co Ltd and Golden Hope-Nha Be Edible Oils Co Ltd. The total vegetable oil refining capacity reached 768,000 metric tonnes (MT) in 2007 and is expected to reach one million MT by the end of this year.

National Company for Vegetable Oils, Aromas and Cosmetics of Vietnam (Vocarimex)Vocarimex was established in 1993 under the Ministry of Trade and controls the vegetable oil processing industry through State-owned companies and joint ventures. It functions as the

representative of the vegetable oil sector, and is engaged in the production and trade in vegetable oils and animal fats. Vocarimex has an annual crushing capacity of 73,000 MT, handling soybean, groundnut, sesame seed and copra. It also processes animal feed and operates a port for the import and export of vegetable oils. The Navioil Port in Ho Chi Minh City’s Nha Be district that it operates,has a handling capacity of 500,000 MT a year. With a vegetable oil tank capacity of 22,200 m³, it is should be capable of receiving vessels of up to 20,000 dead weight tonnage (DWT) for container ships and 25,000DWT for general cargo ships.

Vocarimex at present supplies 95 per cent of the domestic vegetable oil market from its two subsidiaries and two joint ventures. The total output of vegetable oils by the company and its joint ventures has been expanding on a yearly basis. In 2006, the total vegetable oil refining capacity of Vocarimex, including its joint venture with Calofic and Golden Hope-Nha Be as well as the three State-owned plants, was 396,000 MT and this increased to 606,000 MT in 2007.

Cai Lan Oils & Fats Industries Co Ltd (Calofic)Calofic was established in March 1998 in Ha Long City, Quang Ninh Province, about 160km east of Hanoi. This location is ideal as it is near the deep sea port of Cai Lan, a four-hour drive from the southern China border. Siteki

Investments, a member of Wilmar International (then Kuok Oils and Grains) controls 68 per cent of the total registered capital of US$29 million, while Vocarimex holds the remaining 32 per cent.

The company had an annual refining capacity of 120,000 MT for both chemical and physical refining when it was first set up and in this new millennium, the plant capacity was expanded to 165,000 MT a year. In early 2007, a second refining plant with daily capacity of 600 MT came into operation to cater to the demand for cooking oil in the south. Both plants at Ha Long Bay and Nha Be District also produce shortening and margarine.

Golden Hope-Nha Be Edible Oils Co LtdGolden Hope-Nha Be Edible Oils was established in 1992 as a joint venture between Golden Hope Plantations Bhd (now known as Sime Darby Plantations Bhd) holding a 51 per cent stake and Vocarimex the remainder 49 per cent. The initial annual refining capacity of 48,000 MT was s subsequently raised to 90,000 MT annually or 300 MT a day. As the company does not have a fractionation facility, crude palm olein and crude palm stearin were imported from Malaysia for refining, but due to the change in duty structure, imports RBD palm olein and RBD palm stearin are observed snce the duty change.

Tuong An Vegetable Oil Joint-Stock CompanyVocarimex established Tuong An Vegetable Oil Company in 1977 by taking over a refining plant owned by a Chinese company. In 2000, the capacity was expanded to 210 MT a day and in the same year, Tuong An acquired a factory in Vinh City in central Vietnam, which had


Inflation and

theConsumptionof oils and fats Vietnam

Table 7: Installed Capacity of Vegetable Oil Processors

Company Location Status Capacity (tonnes) Brands

Annual Daily

Nghe An, Vinh City 18,000 60 Vung Tau (commissioning in 3Q 08) (180,000) (600)

Rural refineries (3 plants) HCMC 12,000 TOTAL 768,000

Source : VOCARIMEX, trade sources

This is the continuation of our July feature on whether Vietnam will be able to sustain its demand growth amidst growing inflation. This part of the report highlights developments among major users of oils and fats in the country.


4 Malaysian Palm Oil FORTUNE

a refining capacity of 60 MT a day. The company’s third refining plant is coming on stream anytime now at Vung Tau Province, 80km from Ho Chi Minh City, with a refining capacity of 600 MT a day, making it the second biggest vegetable oil producer in Vietnam. This new plant will also have fractionation capacity while its strategic location at a seaport will give it further competitive edge in terms of freight cost. On Dec 26, 2006, Toung An Vegetable Oil JSC became the only public listed vegetable oil processing company in Vietnam.

Vietnamese Cooking Oil SectorCooking oil production in Vietnam in 2007 at 500,000 MT was a whopping 30 per cent increase on the 2006 estimate of 385,000 MT. Of the total cooking oil consumed in 2007, palm olein accounted for close to 45 per cent or 225,000 MT. All palm olein used

in the cooking oil market in Vietnam has to be blended with soybean or rapeseed oil to prevent clouding. Up to 80 per cent of palm olein is used in a cooking oil blend in South Vietnam during summer, while in the northern region, the blend during summer is 50:50. During winter, the content of palm olein will decline to 20 per cent. Blended cooking oil accounts for 94 per cent of the cooking oil sold in the country, with the remaining being soybean, rapeseed and corn oil.

Cooking oil sold to households comes in various container sizes, from 250ml pouches to five-litre plastic bottles. The 250ml pouches and the 400ml bottles are targeted at consumers in the lower income brackets for whom vegetable oils are secondary to the main food items. The five-litre bottles are mainly used by hawkers and restaurants. Larger packaging in 18, 20 and 25kg containers are mainly sold to re-packers and the hotel-retail-catering sector. The ratio of

usage between domestic consumer and industrial consumers is 65:35. Only 10 to 15 per cent of the domestic consumers buy their cooking oil from supermarkets, while the rest get it from the wet/traditional markets.

Vocarimex, through its joint-venture companies Calofic and Golden Hope- Nha Be, and State-owned Tuong An and Tan Binh Vegetable Oil Factory, commands95 per cent of the cooking oil market. Calofic alone takes up 45 per cent of this market through its Neptune brand, while Tuong An and Golden Hope-Nha Be hold 22 per cent and 20 per cent respectively.

Solid Fats SectorThe domestic market for solid fats in Vietnam is estimated at 100,000 MT a year,of which 75 per cent is locally produced.The domestic production capacity for shortening is 130,000 MT a year, and for margarine, 3,000 MT a year. Calofic products make up about 60 per cent of the domestic shortening sales, while Golden Hope-Nha Be accounts for 25 per cent and the remainder is from the State-owned enterprises Tuong An and Tan Binh.

The demand for shortening and margarine is basically from the industrial food processing sector, specifically instant noodle manufacturers and confectioners. It is estimated that shortening accounts for 90 per cent of the solid fats market, of which more than 80 per cent is channelled to the instant noodles sector and the remainder to the confectionery and bakery sector. Instant noodle manufacturers prefer solid fat for frying because it is more convenient to store and handle. The remaining 10 per cent include margarine and creaming fats used in the manufacture of confectionery.

The import tariff of 20 per cent levied on shortening and margarine prior to 2006 made the import of solid fats prohibitive. However, some shortening was imported directly by industrial food manufacturers, for which they got duty drawbacks from the export of their products. Although the duty was reduced in 2006, under the ASEAN Free Trade Agreement, there has been no

large jump in the import of solid fats. The amount of solid fat imports by Vietnam has not been ascertained, but based on Malaysian trade statistics, exports from Malaysia to Vietnam amounted to 5,206 MT in 2006 and 6,721 MT in 2007.

Instant Noodles SectorThe market for instant noodles in Vietnam in 2007 was estimated at 300,000 MT or the equivalent of about 4.2 billion packets of instant noodles, each weighing 70gms. This is a significant growth over the 75,000 MT and 140,000 MT charted in 1995 and 2000, indicating a 10 to 15 per cent growth a year. With population growth at 1.6 per cent annually since 2000, the country’s robust economic growth has brought up the per capita consumption of instant noodles from 1.75kg to 3.43kg.

With increased demand for this consumer product, the number of instant noodle factories in Vietnam increased from 47 recorded in 2000 to more than 100 as of 2007. Among the producers, Acecook Vietnam has been the leader in this sector since 2003, holding a significant 40 per cent of the market share. The other major players are Uni-President Vietnam, Colusa Miliket, Saigon Vewong Joint Venture Co and Vietnam Food Industries Joint Co (VIFON). Besides producing for the local market, some 150 million packets of instant noodles are exported to Europe, Eastern Europe and Asian countries annually.

According to information gathered, 380 MT of oils and fats are required in the processing of every 1,000 MT of instant noodles produced. The main oils and fats used are shortening and RBD palm olein, at a ratio of 3:1, where shortening is mainly used for frying the noodles and RBD palm olein in the seasoning.

In comparison with other Asian countries, the consumption of instant noodles in Vietnam is considered high due to the fast growing affluence of the population. Hence, the country may take a breather on its instant noodles consumption growth in next few years, especially with the cost of production going up by 100 per cent on a year-on-year basis in 2007. The industry also saw a slowdown in growth by about eight per cent for this year. Growth may fall even further as more families in the middle- and high-income groups patronise restaurants more often.

Judging from the demand for instant noodles and the requirement for oils and fats by this sector, the country will require around 130,000 MT of oils and fats this year to produce 340,000 MT of instant noodles.

Table 8: Vietnam - Imports of palm based fats products from Malaysia (MT)

Solid fats products 2003 2004 2005 2006 2007Margarine 30 49 63 63 123Shortening 5,896 5,016 1,229 2,255 2,836Vanaspati 0 503 271 199 0Cocoa Butter Substitute 112 1,289 524 1,077 2,301Cocoa Butter Replacer 17 20 40 140 291Coating Fat 0 0 0 15 65Prepared Vegetable Fat 27 275 1,163 1,457 1,105TOTAL 6,082 7,152 3,290 5,206 6,721

Source: MPOB

Inflationand the

Consumptionof oils and fats Vietnam

(Continued from page 3)




On Jan 1, 2007, regulations came into force that edible oils and fats and their derivatives must be carried on chemical tankers that meet International Bulk Chemical Code (IBC Code) requirements and comply with MARPOL Annex II. Both the IBC Code and MARPOL are regulated by the International Maritime Organisation (IMO), a United Nations body that provides international standards for maritime safety and the prevention of pollution at sea.

All edible oils and fats have always been categorised as “chemicals”, and they belong to the organic chemical family commonly known as esters. Triglycerides, their most important ingredient, are esters of glycerine, and all oils and fats are mixtures of triglycerides from various fatty acids. Along with other edible oils, oleochemicals have for many years been carried in chemical tankers from Southeast Asia to many destinations around the world.

However, a relatively new development, associated with the phenomenal rise in oil prices, has seen the increased production of methyl esters for biodiesel, mainly from palm oil.

So what significance and percentage share do oils and fats and their

derivatives, such as oleochemicals and biodiesel, have in relation to the overall volume of cargo carried by the chemical tanker trade today?

Seaborne vegetable oil tradeChemical tankers carry many products. Table 1 below shows the share of total seaborne trade in oils and fats by these vessels in relation to other products.

The bulk of the products carried by chemical tankers in 2007 was organics (51.1 per cent), followed by oils and fats (27.5 per cent), inorganics (11.7 per cent) and other cargo (lube oils, molasses; 9.6 per cent). All organics contain an important element, carbon, and include

products such as petrochemicals, for which petroleum or natural gas is the raw material. The main inorganic chemicals transported in liquid form are caustic soda, sulphuric acid and phosphoric acid.

Total seaborne trade has risen steadily over the years and is expected to grow at a compounded annual growth rate (CAGR) of 3.2 per cent a year over the next five years. The growth is largely supported by the growth in organics (CAGR 3.7 per cent) and oils and fats (CAGR of 3.2 per cent).

For the chemical trade, the growth is driven by a structural change in which the Middle East will play a bigger role as more petrochemical plants are built. The main growth in demand will come from China, India and the Southeast Asia region on the back of accelerating industrialisation and urbanisation.

Vegetable oils and fats are expected to be driven by increased consumption among growing populations, higher per capita income and dietary changes. Malaysia and Indonesia are world leaders in the export of palm oil, while and Argentina and Brazil lead in soybean oil. Key demand markets are China, India, the European Union and the United States.

Carriage of palm oil by seaIn 2007, 37.4 million metric tonnes (MT) of palm oil were produced, of which an estimated 29.4 million MT was exported in chemical tankers, compared with soybean oil, where 36.7 million MT wereproduced and only 9.2 million MT exported.

Carrying palm oil requires relatively complex operational expertise. There are many factors to consider, such as the stowage requirement for different palm oil products. For example, zinc-coated tanks can only carry refined products and not crude palm oil, while palm acids can only be carried in stainless steel-coated tanks. Heating requirements for the different types of palm products are also an important factor, as this not only means higher bunker cost, but also entails adjacent cargo tank issues. In addition, shipping operators also need to consider the last cargo requirement as per European Union list/FOSFA /NIOP . Last but not least, ship operators must adhere to stringent tank cleaning requirements under MARPOL Annex II.

Since vegetable oils and fats cannot be carried in tankers that have carried other types of chemicals (FOSFA/EU/NIOP), certain chemical tanker operators may choose to dedicate their ships to the carriage of oils and fats and other “acceptable” cargo only, while others may prefer to stay in the chemical trade.

Fleet sizeThe number of chemical tankers has increased steadily over the years. As at end-June 2008, there were 3,644 ships with a total capacity of 74.7 million dead weight tonnage (DWT). On order were 1,034 ships with 24 million DWT, an

Table 1: Total Seaborne Trade (in mil tonnes)

2006 2007 2008F 2009F 2010F 2011F 2012F

Total Seaborne Trade 160.3 168.0 174.5 181.0 187.6 192.1 196.8

Organics 80.7 85.8 89.7 93.7 98.0 100.4 102.9

Inorganics 18.2 19.7 20.3 20.9 21.4 21.9 22.4

VegOil/Animal Oils 45.4 46.3 48.2 49.7 51.2 52.7 54.1 Other Cargoes 16.0 16.2 16.3 16.7 17.0 17.2 17.4

Source: Drewry

The Freight Market

Outlook and Challengesfor the Transport ofEdible Oils and Fats

Figure 1: Chemical tanker fleet

Source: CBA/Drewry. Data as at 30 June 2008

2,465 2,610 2,7433,064

3,4423,644

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¹ FOSFA: The Federation of Oils, Seeds & Fats Association

² NIOP: National Institute of Oilseeds Products


6 Malaysian Palm Oil FORTUNE

increase of 5.9 per cent in numbers and almost seven per cent in terms of DWT over the end-2007 figures.

Small ships (of less than 10,000DWT) make up 41.5 per cent of the total fleet, while bigger vessels of more than 30,000DWT make up 32.6 per cent. Vessels of 10,000DWT to 30,000DWT size make up the remaining 25.9 per cent.

IMO regulations require specialised ships for the carriage of a large spectrum of commodities – sophisticated and base organic chemicals, inorganic chemicals, and vegetable oils and fats (palm oil being the largest segment). These are the main commodities carried by chemical tankers. The regulations and classifications are largely governed by IMO, which has classified more than 900 types of chemical cargo.

Since January 2007, oils and fats can no longer be carried in non-IMO or single-hulled vessels. This new rule has a significant impact on the dynamics of chemical shipping. Now, only IMO II and specially adapted IMO III vessels can carry vegetable oils.

As at June 2008, out of 3,664 vessels, 3,150 are IMO vessels and 494 non-IMO vessels engaged in the carriage of chemical cargo, with IMO vessels accounting for 60.7 million DWT and non-IMO vessels, 14 million DWT. Out of these IMO vessels, only the IMO II, IMO II/III and IMO III DH class vessels can carry vegetable oils – or only 2,872 vessels with 57.8 million DWT.

However in reality, some of the vessels carry chemicals, vegetable oils and CPP, meaning that they are not necessarily dedicated to carrying vegetable oils alone. It is estimated that out of the total number of IMO vessels, close to 2,300 (with 35.2 million DWT) are in the chemicals/vegetable oils trade, compared with about 850 vessels (of 25.5 million DWT) being worked for CPP cargo.

Based on the new building programme to date, the bulk of the new vessels – 543 vessels of 11.2 million DWT – will be delivered this year. The majority are IMO-class vessels, which is not surprising, given the new regulations.

Freight rateFigure 2 shows, the freight rates for shipment of oils and fats until June 2008. The freight for palm oil from the Straits of

Malacca to Northwest Europe includes the mean average of 1,000-, 5,000-, 30,000- and 40,000-tonne shipments over the period.

In the near term, the freight rates may be impacted by the entry of new vessels into the market, with the growth of the CPP trade likely to absorb a significant part of the additional capacity. In the longer term, while rates are expected to remain volatile, the demand drivers of the vegetable oil trade are expected to keep the rates reasonably positive. This is further accentuated by the pressures of increasing costs, including bunker costs, higher new vessel costs and operating costs, which may create a higher threshold for freight levels.

Challengesi. Higher Bunker Costs and Voyage

CostsThe freight market is currently facing a number of challenges, particularly higher bunker and operating costs. Higher bunker costs obviously have a significant impact on the shipowner’s bottom line.

Figure 3 shows the movements in bunker and oil prices over the past six years. Bunker price was below US$2 00 per MT back in 2002. In 2008, the average bunker price of IFO 380 CST was US$569 per MT and has gone up as high as US$760 per MT.

Under IMO MARPOL Annex VI, the North Sea SECA was enforced in November 2007, whereby ships trading in the SECA area are required to use bunkers containing lower sulphur content - which means a higher cost. This in turn further increased the bunker cost for shipowners on the European route.

Assuming bunker price IFO 380 CST is US$700 per MT, the additional cost of

carriage for 40,000 tonnes of palm oil from the Straits to Northwest Europe works out to US$10.60 per MT of cargo.

Compare this with freight levels over the past year, in Figure 4. The freight rates for Far East-Rotterdam only increased by US$1 per MT. This leaves the shipowners having to bear a cost of more than US$9 per MT on the Straits-Northwest Europe route.

The sharing of risks and rewards could be achieved through a bunker adjustment clause. This way, the owner and charterer agree on the range of the bunker price, say US$650-US$700 per MT. If the bunker price is more than US$700 per MT, the charterer will agree to pay a percentage of the increase in bunker price, multiplied by the quantity. If the bunker price falls below US$650 per MT, the owner will in turn compensate the charterer a percentage of the decrease in price, multiplied by the cargo quantity.

Besides bunker, shipowners also face higher voyage costs, including port costs and canal charges. For example, the Suez Canal tariff has been rising over the years, with the latest increase being 15 per cent in April 2008.

ii. Higher Manpower and Ship Operating Costs

Not only bunker costs are higher, shipowners also have to contend with higher manpower costs. The shipping industry is facing a severe shortage of trained and certified officers. The sheer increase in the numbers of all types of ships is one of the reasons for the crew shortage and the large number of orders for new ships in the coming years will continue to strengthen the demand for qualified crew.

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Figure 2: Freight rates

2001-2008 Main commodity freight rates oils and fats trade US$/mt

Source: KTR Maritime

Palm Straits Europe

AverageMolasses GeneralSoft Oils Arg/Bzi-Ind/China

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The Freight Market



Malaysian Palm Oil FORTUNE 7(Continued from page 6)

Based on Drewry fleet growth and assuming that supply increases at the current rate, the shortfall in 2012 could touch 83,900 sea personnel. To train an officer cadet until he or she obtains the first certificate of competence can take up to five years. It will take another eight to 10 years or more to produce a well-trained ship captain, while a new ship can be designed and delivered in less than two years.

iii. Higher investment costs - vessel price

Shipbuilding prices over all shipping sectors have more than doubled in the last five years, and among the contributing factors are:1. Significantly higher cost structure of

shipyards due to higher prices of raw materials, particularly steel, labour costs and appreciation of domestic currency to the US dollar;

2. Limited slots at the shipyards. In the case of chemical tankers, this is compounded by the limited number of yards that can construct such tankers; and

3. Increased demand for vessels by shipowners on the back of growth in the seaborne trade.

Tightening of ship credit and financing costs further compound the capital cost structure of shipowners.

iv. RegulationsShould the regulations be tightened so that only IMO II vessels can carry oils and fats, then the supply of vessels to transport oils and fats will be further strained.

In addition, MARPOL Annex I will also come into effect on Jan 1, 2010 when all international trade in petroleum products must be in double-hulled ships if over 5,000DWT. In Asia particularly, most double-hulled ships of below 15,000DWT

are in the chemical and oils and fats trade. This will affect the palm oil business as the petroleum product industry will be competing for these ships in the regional trade. The vegetable oil trade may therefore face a deficit of smaller-sized vessels for transport.

v. Swing TonnagesOne of the other challenges that exporters will continue to face is competition from alternative use of the vessels. Most of the existing and new chemical tankers are built to cater to different trades – chemicals, vegetable oils and CPP. For example, when the CPP market is strong, such as what has been experienced these last few months, some of the larger vessels normally participating in the chemical/vegetable oils segment may swing to the CPP arena.

MISC’s role as a shipping companyMISC has been actively involved in the transport of vegetable oils, particularly palm oil, for more than 30 years. As part of its chemical fleet renewal and expansion plans, MISC has a programme to build up to 20 new chemical tankers ranging from 20,000DWT to 45,000DWT, to be delivered between 2009 and 2011. All the new vessels will meet IMO II specifications for carrying oils and chemicals.

With the growth in oil palm acreage and demand from importing countries, MISC will expand its participation in the palm oil trade in the medium- to long-term with the delivery of the new vessels.

Outlook for the chemical tanker segmentIn the shorter term, uncertainties in the freight market will continue. Freight rates are expected to be volatile, affected by oil prices and the interplay of demand and supply. The volatility of bunker prices

also creates the need to relook the sharing of risks and rewards between shipowners and charterers.

In addition, should the regulations regarding the carriage of oils and fats be tightened, charterers may have to contend with a smaller pool of vessels allowed to carry palm oil. Already, derivatives such as oleochemicals and biodiesel must be carried on IMO II vessels. The advent of MARPOL Annex I in January 2010, when petroleum productsmust be shipped in double-hulled vessels, is also likely to see more vessels going into the petroleum trade.

This article was presented by MISC Berhad at the 2nd International Palm Oil Trade Fair & Seminar, Aug 25-26, 2008 in Kuala Lumpur. The paper was written in collaboration with CBA Associates (CBA) and KTR Maritime Consultants (KTR).

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Parcel Size

GlossaryCategories of ship:IMO II: A vessel with all its space for

IMO I and/or IMO IIIMO III: A vessel with a combination

of IMO I/II and IMO III spaceIMO III DH: A vessel with all IMO III

space and with a double hullIMO III non DH: A vessel with all IMO III space

with no double hullNon-IMO: A vessel with no IMO space

(a.k.a. product tankers)

Note:

carried in an IMO-class tanker

to carry petroleum products.

oils and fats, other products (molasses & lubes) are regulated under the International Bulk Chemical Code (IBC) Chapters 17 and 18 and MARPOL Annex II.

BIPORT BULKERS SDN.BHD.

STORAGE TANK CAPACITY BERTHING FACILITIES

Biport Bulkers Sdn.Bhd. (BBSB) is the newest gem of Bintulu Port Holding Berhad (BHB) after Bintulu Port Sdn.Bhd. (BPSB) which are a wholly owned subsidiary of Bintulu Port Holdings Berhad. BBSB was established to manage and operate a vegetable oil bulking terminal to cater for ever growing palm oil industries in the state of Sarawak, Malaysia specializing in the storage and the main outlet for vegetable oils.

BIPORT BULKERS SDN.BHD.



Fast Food Sector The fast food sector under this study focuses mainly on international fast food restaurant chains operating in Vietnam, such as KFC and Lotteria. McDonald’s is not present at this point in time but the company has decided to invest after Vietnam’s formal accession to WTO in January 2007.

From less than 15 outlets in 2005, both KFC Vietnam Co Ltd (which opened 10 years ago) and Vietnam Lotteria Co Ltd (opened 12 years ago) expanded to 44 and 45 outlets respectively by the end of 2007. The proliferation of fast food restaurant chains could be attributed to the impact of advertising, with consumers being led to believe that these restaurants offer better quality food. Coupled with a better living standard, it is not surprising that the Vietnamese today pay more attention to their health and opt for “high quality” fast food.

Since last year, both KFC and Lotteria have been using only RBD palm olein for the frying of their chicken, burgers and fries. KFC estimates it used 40 MT of RBD palm olein per month or 480 MT a year, while for Lotteria, it was 312 MT a year in 2007. Both companies source their palm oil from local refineries and normally buy it in 18kg cans.

The two companies see very good potential for fast food in Vietnam’s booming economy, with growth forecast at 10 per cent a year for the next few years. In anticipation of this and the possible opening of McDonald’s outlets in Vietnam, KFC is planning to open 16

outlets a year over the next three years or have a total of 100 stores by then. Lotteria aims to have 40 more new outlets running by the end of this year and also hopes to open its 100th store in three years’ time.

Based on the average volume of RBD palm olein consumed in each KFC and Lotteria outlet in Vietnam, their annual use of palm oil will increase to 1,100 MT and 700 MT respectively by 2010.

Confectionery and Snacks SectorAs of 2007, the average amount a Vietnamese spent on confectionery and snacks was VND150,000 (US$9.70) a year, or an increase of 12 per cent a year from 2002. The domestic confectionery industry comprises 30 large manufacturers and hundreds of smaller producers operating nationwide. Vietnamese confectionery producers account for 70 to 80 per cent of the local market share. Among the larger producers are Kinh Do Co Ltd, Bien Hoa Confectionery, Hai Ha Confectionery, Hai Chau Confectionery and Quang Ngai Sugar Company.

Being the biggest player in the confectionery sector, Kinh Do commands 20 per cent of the market, with its closest competitor accounting for only five per

cent of the market share. Kinh Do’s leading position in the market can be attributed to its extensive distribution network, with more than 30 bakeries in 2007 and hundreds of franchise stores selling Kinh Do products.

Kinh Do uses about 1,200 MT of palm products every month, comprising 700 MT of RBD palm olein and 500 MT of shortening. With the annual demand of 8,400 MT of RBD palm olein and 6,000 MT of shortening, the usage of palm oil products by the confectionery and snacks industry is estimated at 72,000 MT a year.

ConclusionMost of the end-use markets for palm oil in Vietnam have the potential to grow rapidly in the medium- to long-term. The potential growth in each of these sectors will depend as much on marketing and technical development as on the demand outlook.

Instant noodles is a potential growth area as palm oil is accepted by the industry, even though current per capita consumption of noodle is far behind that of other countries in the Asia Pacific region. There would be greater demand for palm oil if consumption in Vietnam reaches the level of, say, South Korea. There is scope for further demand by domestic consumers as well since household consumption accounts for about 60 per cent of vegetable oil consumption in the country. Overall, studies indicate that Vietnam’s total demand for vegetable oils can double, with contribution from population growth and the higher propensity to spend. Theoretically, with further improvement in living standards and higher purchasing power, household consumption of vegetable oils is expected to increase.

However, the fast-developing economy has been hit hard by the current high oil and food prices, which have increased its

inflation at a rate higher than other countries in the region. The average inflation for January-July 2008 was 21 per cent on a year-on-year basis, and this has affected the purchasing power of the Vietnamese. The government, on its part, is slamming the brakes by increasing interest rates to try to bring inflation down to at least a single-digit figure and postponing public investment projects. The crucial test is how the government manages the Vietnamese economy. Only time will tell whether this promising economy can emerge as the “new China”. Desmond Ng

Table 9: Instant Noodles Consumption by Asian Countries

Country 2002 2003 2004 2005 2006 2007 Per Capita (hundred million pieces) Consumption

China & HK 231.0 320.0 390.0 442.6 467.9 501.1 37.7Indonesia 109.0 112.0 120.1 124.0 140.9 149.9 65.2Japan 52.7 54.0 55.4 54.3 54.4 54.6 42.0Vietnam 17.0 23.0 24.8 26.0 34.0 39.1 43.4South Korea 36.5 36.0 36.5 34.0 33.7 32.2 64.4the Philippines 20.0 22.0 25.0 24.8 25.0 24.8 27.6Thailand 17.0 17.2 17.8 19.2 20.5 22.2 31.7Malaysia 7.4 8.2 8.7 8.9 10.6 11.8 40.7Taiwan 9.4 10.0 9.5 8.9 8.7 8.5 37.0

Source: World Instant Noodle Association

Table 10: Vietnam-Forecast Instant Noodle Production and Implied Shortening

& Olein Demand

2007 2008F 2010FInstant Noodle Output For local market 300,000 324,000 350,000 For export 15,000 16,200 17,500

Total 315,000 340,200 367,500Implied shortening & olein demand 120,000 129,600 140,000

Source: MPOC estimates

Inflationand the

Consumptionof oils and fats Vietnam


EU Panel

Scales DownBiofuel Targets


10 Malaysian Palm Oil FORTUNE(Continued from page 1)

While the environmentalists praised lawmakers for reducing the target, the panel’s proposal resulted in immediate reactions from numerous parties. For example, the European Bioethanol Fuel Association, a body representating biofuel producers, highlighted that this may put at risk over five billion euros (US$7 billion) invested in EU biofuel production capacity and all the employment linked to it. Some European producers said the revised target could be a blow to the biofuel industry as many producers have built substantial capacity based on the voluntary target of 5.75 per cent biofuels by 2010, which was set in 2003. The biofuel producers felt if the new target became EU law, the production of biofuel could come to a standstill. The proposal on a major review in 2014 on the policy to determine whether the 2020 target needs revision has also created some uncertainty in the industry.

As for the existing and potential biofuel exporters, the revised EU stance could curb the growth of a market desired by countries such as Malaysia, Indonesia, Brazil and other farming nations. Of course, as far as Malaysia is concerned, the revised directive seems to give a signal that EU is putting some barricades to the inflow of biofuel and biofuel raw materials from the exporting nations. The Malaysian government has put the case across to EU to review its decision on renewable energy and fuel quality, especially on the use of palm oil for the production of biofuel.

This committee’s decision on the amended climate change bill will now serve as parliament’s position in negotiations within the full European Parliament. The strong majority of 50 in favour and two against does given an initial hint that the report will have the backing of the EU governments and the EU assembly when it votes.

TM

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For enquiries, please contact :Malaysian Palm Oil Council

2nd. Floor, Wisma SawitLot 6, SS6, Jalan Perbandaran47301, Kelana Jaya Selangor

Tel: 603-7806 4097Fax: 603-7806 2272

E-mail: [email protected]

China InternationalConference of Seed Crushers

&Malaysia-China Palm OilTrade Fair & Seminar 2008October 16-17, 2008Grand Metropark Hotel, Nanjing

EXHIBITIONExhibition - Nanjing International Exhibition Center Standard Stand size : 3 m x 3 m boothRate : RM 2,700 per booth

Malaysia-China POTS 2008 offers a limited numberof exhibition opportunities. This has become theavenue for making contacts and networking, and toattract new clients. A physical presence at theconference is often the best way to promote businessdevelopment, and to showcase and promote products, equipment and services to decision makers worldwide.

SPONSORSHIPSponsorship OpportunityMalaysia-China POTS 2008 presents an excellentopportunity for companies to build brand awareness andmake lasting impression amongst delegates and tradevistors to this event. Sponsorship opportunity is designed toprovide companies with unique marketing opportunities to reachout to the audience and to maximize exposure during theevent. Whether your company wishes to promote yourproducts or services, MPOC provides this sponsorshipopportunity to enhance visibility and greater recognition for your company and your products.

Value of Sponsorship Your company can make a Sponsorship contribution RM 20,000, and receive the following advantages: One complimentary conference registration worth RM1,000.

Two exhibition booths (18sq m) is included in this sponsorship.

Company logo will be displayed on the conference backdrop. A full-page advertisement in the conference program book.

TOPICS Development and trends in vegetable oil industry in China Policy support from Chinese government for oilseed production and industrial restructuring Development of soybean crushing industry in China and policy in dealing with surplus

production capacity China’s grain security and development of soybean industry The fast development of olive oil demand in China The development and trade of soybean industry in South America Market influence of U.S. soybean and soybean products in the international market Impact of development of bio-fuel industry on the supply and demand of edible oils, fats and

oilseeds market Analysis on the supply and demand of global oils and fats industry in 2007/08 and 2008/09 Factors affecting the price hike in international oils, fats and oilseeds market The production, trade and price trend of Malaysian palm oil

For further information & registration, please contact:

Mail or Fax form to :The Malaysia-China POTS 2008 SecretariatMalaysian Palm Oil Council (MPOC)2nd Floor, Wisma SawitLot 6, SS 6 Jalan Perbandaran 47301 Kelana Jaya, Selangor, MalaysiaTel: 603 - 7806 4097 Fax: 603 - 7806 2272Email: [email protected] Person : Desmond Ng

SOLD OUT

MPOCOffices

WorldwideMalaysian Palm Oil Council (MPOC)2nd Floor Wisma Sawit Lot 6, SS 6, Jalan Perbandaran47301 Kelana Jaya, SelangorTel: 603-7806 4097Fax: 603-7806 2272www.mpoc.org.my

American Palm Oil Council Suite # 690, 21515 Hawthorne Blvd.Torrance CA 90503, USATel: +1 (310) 944 3910Fax: +1 (310) 944 3544www.americanpalmoil.comE-mail: [email protected]: Mohd Salleh Kassim

MPOC Africa Regional Office5 Nollsworth Crescent, Nollsworth ParkLa Lucia Ridge Office Estate,La Lucia 4051, KwaZulu-Natal, South AfricaTel: +27 (31) 5666 171Fax: +27 (31) 5666 170E-mail: [email protected] Address:P.O.Box 1591M.E.C.C. 4301, South AfricaContact: Uthaya Kumar

MPOC Bangladesh62-63 Motijheel Commercial Area,7th Floor, Amin Court Building,Dhaka, BangladeshTel: +88 (02) 9571 216Fax: +88 (02) 9551 836E-mail: [email protected]: Fakhrul Alam

MPOC Shanghai, ChinaShanghai Westgate Mall Co. Ltd.Room 1610B, 1038 Nanjing Rd. (w)Shanghai 200041, P. R. ChinaTel: +86 (21) 6218 2085 / 6218 2086Fax: +86 (21) 6218 1125E-mail: [email protected]: Teah Yau Kun

MPOC Pakistan11 – 3rd Floor, Leeds CentreMain Boulevard Gulberg, 111 Lahore, PakistanTel: +92 (42) 5716 600 / 5716 601Fax: +92 (42) 5716 602E-mail: [email protected]: Faisal Iqbal

MPOC India S-4, New Mahavir Building, Cumballa Hill Road Kemps Corner, Mumbai 400 036Tel: +91 (22) 6655 0755 / 6655 0756Fax: +91 (22) 6655 0757E-mail: [email protected]: Bhavna Shah

MPOC Europe Regional Office31 Avenue Emile Vendervelde1200 Brussels BelgiumTel: +32 (2) 7748 860Fax: +32 (2) 7794 371E-mail: [email protected]: Zainuddin Hassan

MPOC Dubai #202, Al-Safeena Building, Near Lamcy PlazaZabeel Road Dubai, UAETel: +97 (14) 3358 571Fax: +97 (14) 3358 572E-mail: [email protected]: Fatema Jasem Hamidi

MPOC Cairo3 Gamal E1-Din Afify Street, Nasir CityZone No.6, 11371 Cairo, EgyptTel: +20 (2) 2273 8108Fax +20 (2) 2273 8106E-mail: [email protected]: Kamal Azmi

Annual Forum7 November 2008

One World Hotel, Bandar Utama, Selangor

We would like to thank and welcome the following sponsors and members of the palm oil industry for

their overwhelming support and generous sponsorship of the

PORAM Annual Forum 2008

MAIN SPONSORS

Supporting Sponsors

Forum speakers and topics: -

“Palm Oil : Can the Current Prices Be Maintained?”

“Sustainable Palm Oil: The Reality of Business”

“World Supply, Demand and Price Outlook of Vegetable Oils - With Focus on Palm Oil”

For further information & registration details including the Industry Golf Game and PORAM Annual Dinner

on 8 November 2008, please contact:

Tel : 03-7492 0006 or E-mail: [email protected] or visit http://poram.org.my/events.htm

Palm Oil Fortune - Vol9 September 2008

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