1. Local oil palm companies are keen to invest further downstream from oleochemicals to oleo derivatives, but many are still hesitant given the good revenue derived from their core upstream business.
2. Attributed the slow take up rate to the perception that oleo derivatives business was capital intensive and involved some challenges.
3. Oleochemicals, Oleochemical Derivatives or Preparations are included in the list of promoted activities and products which are eligible for tax incentives considerations under the Promotion of Investment Act 1986 depending on the merits of each project.
4. Under the National Transformation Programme’s Palm Oil & Rubber National Key Economic Area, investment in commercialisation of oleo derivatives as well as food and health products can also obtain capital grants. Mida is part of the Technical Committee along with Ministry of Plantation Industries and Commodities, Malaysian Palm Oil Board and Performance Management and Delivery Unit that evaluates such projects. The newly set-up Chemical & Advanced Material Investment Advisory Panel meanwhile is responsible in formulating and recommending strategies to the Government for the development of the chemical industry based on the 11th Malaysia Plan.
5. Under the 11th Plan, RM280mil worth of grants are allocated to support palm oil downstream development in oleo derivatives, food and health-based products and clinical trials, including for SMEs.
CHALLENGES
1. Specialty products usually mean smaller and more specific markets where companies would potentially face stiffer competition from established companies and brand names in the niche market.
2. Production of oleo derivatives or speciality oleochemicals usually requires specific R&D and marketing focus while complying with customers’ requirements. The challenge involved would be the uncertain timeline for full scale commercialisation. At the same time, potential investors of both big companies and SME players may find it challenging to find partners to scale up production.
3. Major palm oil players or basic oleochemical producers, despite their deep pockets, are reluctant to invest further downstream or acquire foreign companies because of the risks involved, while the SMEs usually face financing issues.
4. Some have progressed by acquiring technologies and overseas companies. Hence becoming more value-added and downstream driven. However the plants and facilities have to be designed to meet higher specifications and standards.
5. Not only is the technical requirement different but the people and service requirements are more demanding as well.
6. In general, the downstream sectors are closer to the consumer end and also, in the higher end sectors such as personal care, cosmetics, food nutrition etc.
7. To stay ahead of the competitors, local industry players to continue to drive operational efficiencies and improve productivity – to have a better cost base. They must also differentiate and provide better customer and technical services as margins will gradually erode when the supply balance equation is tilted.
8. Overall plant utilisations could drop. This could affect profitability in mid term. But the fact is that the downstream margins are still much higher than upstream (basic oleo) business. To preempt these challenges, plants should be versatile i.e. able to handle different products so that if a particular product’s demand demand falls, it can use the same plant for another product to compensate.
DEMAND
1. Although Indonesian players in terms of revenue were bigger due to their installed capacity, local players have higher profitability. In terms of reputation, Malaysia have better quality and consistent producers as well as more reliable and responsive in our services and deliveries.
2. There were plenty of applications for downstream oleochemicals which can be processed into surfactants, bio lubricants, agro chemicals, glycerol additives, biopolyols, food emulsifiers, cosmetics, soaps and detergents.
3. These products or intermediate materials are widely used in the food industry, toiletries, confectionary, pharmaceutical, oil and gas, and dairy products.
4. The government in China has also reduced the import tariff on palm stearin to 2% after the appeal from China’s Cleaning Industry Association for more affordable oleochemical ingredients from Southeast Asia.
5. Going forward, it is expected that new applications like biolubricants, green chemicals, bioplastics and biopolymers as well as the increase use of palm-based polyols in the polyurethane industry, to continue to push growth in the oleochemicals industry in China.
6. MPOB’s research into MES found that detergent made from the biodegradable MES cleans well at low dosage, even in water that has high mineral content as in China. Hence, company would be able to easily formulate concentrated biodegradable washing powder using MES for the market there.
7. MES is made from palm oil and palm stearin, which are renewable resources, which Malaysia is renown for, making the country a global centre for the production of oleochemicals.
(Source: thestar, MPOB, MIDA, MITI)
