Oil palm grower Sime Darby Plantation Bhd aims to boost income from its palm-based specialty products segment so it contributes to two-thirds of downstream revenue by 2023, an executive told Reuters on Tuesday.
Focusing on these special products, which consist of palm oil refined for specific purposes such as shortening or high-quality cooking oil, will strengthen earnings of Sime Darby's and reduce exposure to volatility in palm oil prices, said Mohd Haris Mohd Arshad, managing director of Sime Darby Oils, the downstream unit of the company.
"The key difference is the stickiness in consumption and demand is far stronger for specialty (products) than bulk oil. So no matter what happens to the market, I will still get this volume," he said.
"In downstream our focus is on higher value products, it’s a good hedge against upstream which is very volatile."
Profits for palm oil producers have been impacted by price volatility for the world's most widely used vegetable oil, due to large stockpiles and rising production, with crude palm oil futures falling to a four-year low earlier in July.
Crude palm oil is refined to extract olein, a liquid used in cooking, and stearin, a solid fat used to make soap and food products. Olein and stearin can be further refined to make specialty products for use in industrial frying, baking and confectionary goods.
MIDDLE EAST FOCUS
Demand for palm-based specialty products is set to be strongest for industrial frying, bakery and confectionary consumption, Mohd Haris forecast, adding that markets like India and the Middle East have strong growth potential for specialty products.
"While there is a growth story, these are also palm friendly markets. There is no demonization of palm oil, so you can talk about offering sustainable palm solutions without having to face the barrage of criticisms from certain sectors," he said.
"In the Middle East, the application of products that they produce is very suitable for palm... (and in India) the growth will push a lot of differentiated products to the market."
Sime Darby Plantation, the world's largest oil palm plantation operator by area, announced last week a marketing partnership with Abu Dhabi Vegetable Oil Company (ADVOC) to increase its presence in the Middle East and North Africa region.
"If we can break a 100,000 tonnes (of specialty and bulk products) volume a year in the Middle East, that would be a great milestone to achieve," said Mohd Haris, which would be up from current volumes of about 20,000 tonnes.