by hanim adnan

One of Ta Ann’s crude palm oil mills in Sarawak.

SIBU-BASED plantation and timber group Ta Ann Holdings Bhd is one of the big plantation casualties from Wilmar International Ltd’s decision to stop buying crude palm oil (CPO) from Sarawak starting from the end of December next year.

Ta Ann, which has been selling 100% of its CPO produced from its palm oil mills to Wilmar’s refinery, Bintulu Edible Oils Sdn Bhd for many years, is obviously perceived by many market observers to be badly affected by Wilmar’s new CPO-sourcing policy.

Under its “No Deforestation, No Peat and No Exploitation” policy, Wilmar decided to stop buying CPO from oil palm companies that plant trees on forest and peat soil in Sarawak by the end of next year.

In Sarawak, Wilmar’s refinery in Bintulu is the first and largest CPO refiner, with about 26% of the total CPO refining capacity in the state.

This is followed by Sarawak Oil Palms Bhd at 22%, BLD Plantations Bhd (18%), Sime Darby Bhd and Assar Refinery (15% each) and Kion Hoong Sdn Bhd (4%).

According to the national palm oil custodian Malaysian Palm Oil Board, the six refineries in Sarawak have a total capacity of 2.9 million tonnes, in which the state produced some 3.1 million tonnes of CPO representing about 16% of the country’s total production.

Some quarters believe Ta Ann will be doubly hit by Wilmar’s decision because most of the established Sarawak refiners are also upstream players with their own oil palm plantations, whereas Ta Ann is just a mere upstream CPO producer without a dedicated refinery to its name.

Sell all CPO to Wilmar

“It is true that we are dependent on Wilmar’s Bintulu refinery to sell our entire CPO production for quite sometime,” Ta Ann managing director and CEO Wong Kuo Hea tells StarBizWeek recently.

In fact, Ta Ann sold about 93,760.71 tonnes of its CPO to Wilmar last year compared with 79,287.48 tonnes in 2012, he adds.

Ta Ann’s oil palm estate in Sarawak

“However, I want to correct some of the misinterpretations out there which says that Wilmar will no longer purchase CPO from Sarawak planters and also, on Ta Ann itself.

Wong: ‘We are depending on Wilmar’s Bintulu refinery to sell our CPO production for sometime.

“The new Wilmar policy will not affect Sarawak planters that have cultivated on forest and peat areas before Dec 31, 2015.

“Only those planters with plans to further expand their plantation hectarage on forest and peat areas will be affected,” explains Wong.

Furthermore, he says it is incorrect for some market analysts to say that Ta Ann will continue to plant oil palm on peat areas beyond 2015.

“For a fact, we do intend to complete developing and planting oil palm on our peat landbanks by this year, which is well ahead of Wilmar’s deadline by end-December next year,” says Wong.

As at January this year, Ta Ann’s total planted area on peat land is 32,755ha (87%) and total planted on mineral soil is at 5,076ha (13%), says Wong.

Wong says Wilmar has given Ta Ann an assurance that all CPO produced from Ta Ann’s existing palm oil mills will continue to be purchased by its Bintulu refinery.

Wong is also optimistic with the demand outlook for edible oils, which is expected to stay strong and promising in 2014.

“Ta Ann does not foresee any problems in selling its palm oil in the foreseeable future,” he says, adding that the current CPO price trading above RM2,700 per tonne reflects exciting times ahead for the commodity.

CIMB Research in its latest report says Wilmar’s procurement policy may be slightly negative for Ta Ann as it would not be able to sell its CPO to Wilmar beyond 2015 but “the group should have no problem selling its CPO to the other five refineries in Sarawak.”

In the worst case scenario, Wong reckons that setting up or buying a refinery facility is an option Ta Ann may consider as part of its strategy for long term and sustainable growth.