Southern Acids strikes cautiously optimistic note

By Ooi Tee Ching

Published: 2012/09/27

SUBANG JAYA: Southern Acids (M) Bhd is cautiously optimistic of its business prospects as its oil palm estates in Indonesia and oleochemical operations in Malaysia suffer from the impact of Indonesia's palm oil tax restructure.

Since August 2011, the Indonesian government has raised palm oil export taxes drastically to boost refining capacity and downstream activities there.

"With cheaper feedstock available to Indonesia's oleochemical producers, the playing field is no longer level," said chairman Tan Sri Low Boon Eng.

"Our oleochemical manufacturing business here suffered substantial margin erosion," he said after the company's shareholders' meeting here yesterday.
Southern Acids operates a 100,000-tonne-a-year oleochemical plant in Kapar, Klang. Its products are mainly exported to Europe, East Asia and South Asia.

Last month, the Palm Oil Refiners Association of Malaysia (Poram) highlighted that the Malaysian government, in allowing five million tonnes of duty-free crude palm oil exports and remaining indifferent towards the plight of palm oil refiners here, had risked the loss of further investment and talent in its oleochemical, specialty fats and biodiesel sectors.

Poram said the government's indecision for the past 12 months had eroded investors' confidence to further value add Malaysia's palm oil downstream sector. This also meant opportunity loss in retaining and attracting highly-skilled knowledge workers.

Low concurred with Poram that the government needs to take a more discerning approach. "The government must do something about the current situation. It has been more than a year already," he said.

Southern Acids, via PT Mustika Agro Sari and PT Wanasari Nusantara, has 7,870ha of oil palm plantations in Indonesia.

Low noted the Indonesia's palm oil tax restructure, in encouraging downstream investment there, had pulled down palm oil prices. "So, our oil palm plantation and milling business had to contend with lower selling prices," he said.

Despite operating in challenging circumstances caused by the restructure of Indonesian palm oil taxes, Low said the group is cautiously optimistic of remaining profitable in the current year ending March 2013.

"We'll continue to focus on our Indonesian operations. So far, we've planted up around 4,700ha. We'll continue to embark on new planting and replanting in Riau," he said.

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