Plantation - Wilmar’s New Policy Impact On Sarawak Plantation Players

Wilmar’s  decision  to  stop  buying  CPO  from  Sarawak  from  2015 onwards will only have a short-term impact, in our opinion, as there are new  refinery  capacities  coming  up  in  the  state  of  Sarawak  and plantation players  have the  option of  exporting  CPO directly.  However, we  believe  a  longer-term  solution  is  needed  to  address  this  issue permanently. No change to our OVERWEIGHT sector call.

• Wilmar’s new policy. Wilmar International Ltd (WIL SP, NR), which has a refinery in Bintulu, has  informed  the  Sarawak  state government  that it will  stop  buying  CPO  produced  from  oil  palm  trees  planted  in  forest areas  and  peat  swamp  land  in  Sarawak  from  2016  onwards.  Wilmar,however,  has  clarified that its new policy  only  applies to new plantation developments,  not  existing  ones.  For  plantations  that  have  been established  on  peat  in  the  past,  it  will  work  with  the  stakeholders  to ensure  that  best  management  practices  for  peat  are  adopted.  Wilmar currently  buys  45%  of  the  CPO  produced  by  41  mills  in  the  state  (c.1.4m  tonnes).  The  rest  of  the  CPO  produced  is  sold  to  five  other refineries. Sarawak has 1.6m ha of peat swamp,  of which  about 72.5% are planted with oil palm.
• Who  will  be  affected?  As  this  new  policy  is  not  supposed  to  impact players who have already planted on peat previously, it should not affect planters  who  already  have  planted  landbank in Sarawak. This includes Sarawak Oil  Palm (SOP MK, BUY, FV: MYR7.12), Jaya Tiasa (JT MK, BUY,  FV:  MYR2.56),  Ta  Ann  (TAH  MK,  BUY,  FV:  MYR4.97),  and  TH Plant  (THP  MK,  SELL,  FV:  MYR1.26),  amongst  others.  However,  this would have an impact on companies which have not completed planting in  their  Sarawak  estates,  or  companies  which  need  to  replant.Nevertheless, we highlight that: i) New refineries coming up in Sarawak -SOP is  doubling its refinery capacity  (currently  at 500,000 tonnes) while TH Plant is setting up a new refinery  (600,000 tonnes targeted for end-2016), and  ii)  plantation players now  also have the option of  exporting CPO  directly  if  need  be.  In  addition,  as  this  new  policy  will  only  be implemented  from  2016  onwards,  plantation  players  in  Sarawak  will have some time to find alternative solutions.
• Longer-term  solution  needed.  This  brings  to  mind  the  need  for  a longer-term solution, as Sarawak’s plantations will always  be deemed to be  at  a  disadvantage,  being  planted  primarily  on  peat  soil.  Lobbyists from palm oil-producing countries would therefore need to work harder to prove that CPO  planted on peat soil is still environmentally friendly. We leave our OVERWEIGHT stance on the sector unchanged.