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CNO generally trades a premium to CPKO (historical average US$27.5/MT) Yields prone to weather vagaries Production reducing due to a wilt disease for which no cure has been found No new plantations Between them, PO and PKO cover the entire carbon chain lengths Abundance of byproduct Palm Stearin
Very low volumes and not used because of cost, quality and availability considerations
QUICK FACTS About 68% of all oleochemicals produced in 2010 were palm-based 20% of CPO produced is used as oleochemical feedstock 40% of the palm-based oleochemicals are made from palm oil/palm stearin and the remaining 60% are made from palm kernel oil Typical investment of US$ 25-40 million for a 200-500 TPD fatty acid splitter with production cost of around US$ 110 per MT output Returns: ROI 6%-7%; IRR 7%; Margins 4%-5% Low-tech, low-margin & capital intensive industry
Creating value is our business
RISE OF MALAYSIA
Huge profit margins led to increased number of players and commoditization of the products, which squeezed margins in this sector Current industry margins are at 4%-5% and average capacity utilization of 80%-85% However, best cost producers are running their plants at full capacity No capacity increase in Malaysia in the last 4 years
RECENT TRENDS
CONSUMPTION
MAJOR PLAYERS
RECENT DEALS
INTEGRATION
VERY LOW
1. Capital-intensive 2. Low margins 3. Powerful and competitive existing players Bargaining Power of Consumers:
LOW
1. Tallow becoming obsolete 2. CNO short supply & higher priced 3. Petrochemicals are only complements and not substitutes Competitive Rivalry within Industry
VERY HIGH
1. Consolidated consumer base
2. Large and powerful players like Unilever and P&G Bargaining Power of Suppliers:
VERY HIGH
1. Large players like Wilmar and Sime with plantation backing
2. Squeezed margins Government Policy:
Oleochemical Industry
VERY LOW
1. Large number of suppliers
ATTRACTIVE ??
4. Ability to run at full capacity/ Efficiency in operations to minimize production costs/fixed costs per unit of output 5. THE EDGE: Favorable government policy (tax exemptions) OR logistic advantage
Long-term View
Greater integration and consolidation in the industry Expansion of Asian majors into consumer markets through acquisitions and JVs to achieve scale Emergence of BRICS are major consumers Indonesia a lot depends on the final outcome of the export tax duty structure Africa being a net importer of edible oil, governments might discourage exports of palm products until they become self-sufficient
Forward integration of Asian majors into final products in local markets since this is where value lies Companies like KLK already doing this Demand will be driven by research and identification of new uses African demand for oleochemicals will become significant will be the new Asia Emergence of a large number of niche players to cater to diverse needs for specialty chemicals, especially in personal care, cosmetics and pharmaceuticals 3-5 YEARS 10 YEARS
Future Scope
1. Better understanding of Indonesia and China 2. Greater detail into the cost structure and duty structure in Africa 3. Study and estimation of demand for sustainable palm products 4. Understanding the industry from a customer perspective FMCG companies 5. Study of niche oleochem derivatives players
In the pipeline:
DISCUSSION
ACKNOWLEDGEMENTS