Bloomberg News

IOI Plans Palm Oil Refinery in Indonesia as Production Expands

May 25, 2012

IOI Corp. (IOI), Malaysia’s second-biggest palm oil producer by market value, plans to set up a refinery in Indonesia as it boosts output in the world’s biggest grower of the tropical oil used in food and fuel.

The company expects to produce about 500,000 metric tons of palm oil from plantations in Indonesia in about three years, Executive Director Lee Yeow Chor told reporters in Johor state today. IOI is also seeking to acquire plantations to increase output, he said.

Expanding output in Indonesia may help IOI hedge against stagnation in Malaysia, where companies are hampered by limited availability of land suited to plant oil palm. Malaysian production may be flat in 2012 between 18.6 million and 19 million tons, while output in Indonesia may reach 26.5 million tons, Dorab Mistry, director at Godrej International Ltd., who’s traded palm oil for more than three decades, said in March.

“In three years time, we expect that our own-produced palm oil will be about 500,000 tons, so that’s about the time we can set up the refinery,” Lee said. IOI has planted oil palm in about 12,000 hectares in Indonesia, and expects to seed 10,000 hectares each over the next four years, he said.

IOI’s fresh fruit bunches output may grow at a slower pace of about 5 percent in the year ending June compared with 10 percent a year earlier as the lagged effects of a drought affected yields, Lee said.

The Roundtable on Sustainable Palm Oil, or RSPO, lifted a suspension of the Putrajaya-based company’s certification process of its plantation in Sarawak for six months, he said.

Certification Process

The RSPO suspended IOI’s sustainability certification process last year after “several non-governmental organizations, namely Migros, Friends of the Earth and Grassroots, as well as the local community of Long Teran Kanan in Sarawak” made allegations including endangering wildlife and illegal deforestation against the company.

Palm oil futures in Malaysia may rebound to 3,200 ringgit a ton in the next one to two months on rising demand during the festival of Eid and the Muslim fasting month of Ramadan which precedes it, Lee said.

“This year, Hari Raya is coming early, so we’ll see the Ramadan-induced demand in June,” said Lee. Consumption of staples and cooking oils climbs during the fasting month of Ramadan, which starts in July, as followers break daylong fasts with communal meals.

The August-delivery contract climbed 2 percent to 3,130 ringgit a ton on the Malaysia Derivatives Exchange in Kuala Lumpur today.

To contact the reporter on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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