KUALA LUMPUR: The palm oil downstream sector will always provide huge opportunities and remain a strategic necessity for the overall industry.

Felda Global Ventures Holdings Bhd (FGV) president and chief executive officer Datuk Mohammed Emir Mavani Abdullah said the downstream would always be necessary due to limitation of land expansion in the upstream sector.

“The palm oil downstream also fuels rapid expansion of company revenue due to intrinsic price of downstream products compared with unpredictable crude palm oil and crude palm kernel oil prices,” he said.

Mohammed Emir was speaking at the third Tan Sri Dr B.C. Sekhar Memorial Public Lecture 2014, entitled “The Palm Oil Industry — Downstream and Its Challenges”, which was officiated by Plantation Industries and Commodities Minister Datuk Seri Douglas Uggah Embas during the weekend.

The palm oil sector grew at a cumulated average growth rate of 18 per cent, earning the country some US$48 billion (RM161 billion) in export receipts last year.

He said opportunities in the palm oil downstream business were huge as it could capture better margins from high value segments of specialty fats and chemicals.

“Industry players with downstream exposure are typically rewarded with higher price-earnings multiples of an average 13 times.”

Mohammmed Emir added that total global consumption of oils and fats was projected to grow by 103 million tonnes between 2009 and 2020, with palm oil set to capture 47 per cent, or 48 million tonnes, of this, making it the largest and fastest growing vegetable oil.

He said the key drivers for the rise in oils and fats consumption were growing health concerns, substitution of tallow and grease for vegetable oils and China’s urbanisation. On biodiesel and its business sustainability, crude palm oil (CPO) biodiesel provides supplementary revenue stream with benefits of inverse dependency of CPO market prices.

Malaysia is the second largest palm oil producer after Indonesia, while FGV is the world’s third largest oil palm operator and the largest CPO supplier, commanding some seven per cent of the market or equivalent to some three million tonnes a year.

Source : New Straits Times