Palm | Kelapa Sawit

05 May 2003 00:00 [Source: ACN]
Feedstock production might be high, but coconut oil supply is under threat from urbanisation and competing applications. In addition, the industry suffers from too small capacities and weak infrastructure, writes Malini Hariharan
Feedstock availability is becoming an issue for the oleochemical industry in the Philippines. Even though the country is one of the world's biggest producers of coconut oil, challenges need to be tackled to prevent short supply.
While the palm oil-based oleochemical industries in Malaysia and Indonesia have expanded their base successfully during the last decade, the coconut oil-based industry in the Philippines appears stuck in a rut.
Global majors are not queuing up to set up plants in the country and existing players have so far not revealed any ambitious expansion plans.
According to government estimates, the industry with nine manufacturers and 23 products has an annual production capacity of 328 621 tonne. The largest producer is United Coconut Chemicals, followed by Pilipinas Kao.
Total annual consumption of various oleochemicals such as fatty acids, fatty alcohols and glycerine is estimated at 32 000 tonne.
In fatty acids, the Philippines, with a capacity of 130 000 tonne/year, accounts for 2% of world production. It has a bigger share of 10% in natural fatty alcohols, with a capacity of 100 000 tonne/year.
Despite the Philippines being a major producer of coconut oil, the oleochemical industry finds itself constrained by unstable supply and volatile prices.
According to one estimate, total coconut-oil production in the Philippines in 2002-03 is forecast to decline by 2.4% from 1.35m tonne in 2001-02. A major reason for the decline is poor rainfall.
One oleochemical producer says that, while 2002 was a fairly good year for local producers due to low prices for coconut oil, the outlook for 2003 is not as good mainly because feedstock costs are projected to be higher on account of an imbalance in demand and supply.
Besides natural factors such as typhoons or droughts, urbanisation has also been responsible for a slowdown in coconut-oil production growth in recent years.
'The supply of coconut oil is going to be a matter of concern for all, including those outside the Philippines,' says the oleochemical producer.
There are also competing uses for coconut oil. One of the uses is for food, with the demand for this application increasing in the last few years.
In a recent report on the industry, the Board of Investments (BoI) acknowledged the need to formulate a new long-term tree-planting policy as planting and replanting programmes implemented during the last two decades have failed.
Copra quality-improvement programmes also have to be drawn up to ensure adequate supply of high-quality coconut oil for oleochemical production.
Meanwhile, some in the industry have been pressing the government to develop the palm-oil sector, so that this oil can be used for food, releasing precious coconut oil for oleochemical production.
Currently, over 50% of the country's palm-oil requirement is met through imports. Local demand is estimated to be growing at an annual rate of 15% while production of palm-kernel oil and palm oil rose by only 4.56% and 0.01% respectively during 1990-2000.
But even if the problems related to coconut supply are solved, it will still be an uphill task for local oleochemical players to compete successfully with Malaysian and Indonesian players in the global market.
Palm-oil production in Malaysia and Indonesia has increased steadily in the past few years. It is estimated that since the 1980s, Indonesia's palm-oil acreage has grown by 21%, while Malaysia's has expanded by 9%. During the same period, coconut acreage in the Philippines declined by 1.3%.
The Malaysian government has been successful in attracting investments in oleochemicals. For instance, nearly 300 000 tonne/year of capacity for fatty acids was commissioned in Malaysia last year. And many more additions are in the pipeline.

Total oleochemical capacity in the country rose to 1.8m tonne/year in 2002, a 47.5% increase from 2001. And companies such as Kao are expanding capacity in Malaysia rather than in the Philippines.
When compared with their counterparts in Malaysia, the Philippine producers' capacities are much smaller. And producers have to export their surpluses.
But, like all other industries in the Philippines, the oleochemical sector also faces infrastructure constraints and high energy costs.
Companies do not have adequate infrastructure support from the government in the form of storage tanks and bulk vessels needed to move large volumes of coconut oil. This has resulted in higher investment and operating costs.
While the BoI is attempting to attract investors by offering a wide range of incentives, its efforts have yet to yield tangible results.
The BoI now offers zero value-added tax on coconut oil sold to oleochemical-exporting companies. Fiscal and non-fiscal incentives are offered if Filipino-owned oleochemical companies export 50% of their output and foreign-owned companies export 70% of production. New projects with pioneer status are exempted from paying income tax for six years.
Incentives are also available to companies that undertake pioneering R&D work on downstream applications of oleochemical products.
A government source says so far, a few companies, including an Indonesian company, have shown interest but talks are still at an early stage.
Interestingly, the oleochemical sector is no longer on the BoI's top-10 investment priority list, which includes automobiles, processed food, electronics, marine products, construction material, organic food, furniture, and information and communication technology. These industries have been selected as they offer the maximum export potential.
Figures from the BoI indicate that oleochemical exports peaked at 154 000 tonne in 1987 due partly to rising consumer preference for natural oil-based products. But exports declined in the subsequent years except in 2000 and 2001, as lauric-oil prices rose at a time when prices of petrochemical-based substitutes were stable.
The government source says that, though the oleochemical industry is still important, it does not figure on the top-10 list partly because the government has recognised the difficulty of promoting this industry.
He admits that progress will be slow until reforms in the coconut industry take place.
As for long-term survival and growth, companies will also have to identify new markets, says the oleochemical producer. The BoI would like companies to diversify their exports to cover non-traditional markets such as Russia, China and India.
Currently, Japan, the US, South Korea and the Netherlands are the top four export destinations.
Beside the problems listed above, local companies also have to take into account a whole range of other issues, such as global overcapacity in some sectors, volatile product prices and competition from synthetic substitutes.
These problems go in hand in hand with the opportunities made available by a rising population, growing consumer preference for natural products and new applications for oleochemicals.
As the government source puts it: 'The industry has great potential, but the Philippine government has to make the right decisions and frame the correct policies.
'Until this happens, the prospects for the local industry are not so bright.'

MAJOR OLEOCHEMICAL COMPANIES IN PHIL
Name
Major products
United Coconut Chemicals
Fatty acid, fatty alcohol, glycerine
Pilipinas Kao
Fatty alcohol beads, hydrogenated fatty alcohols,methyl ester, refined glycerine, fractionated alcohol, sodium lauryl sulfate, mono alkyl phosphate,alkanolamide and surfactants, coco-tertiary amines,fractionated methyl ester
D&L Industries
Coconut methyl ester, coco monoethanolamide,coco diethanolamide
Primo Oleochemicals
Fatty alcohol, low MW fatty acid, glycerine
Sakamoto Orient Chemical Corp
Crude glycerine, refined glycerine
Chemphil Albright and Wilson Corp
Sulfated cocochemical products
Senbel Fine Chemicals
Fatty alcohols, methyl esters, glycerine,alkanoamides
Stepan Philippines
Coco fatty alcohol surfactants
Unistar Oleochemical Corp
Oleochemicals
Source: Board of Investment, Philippines