KUALA LUMPUR (Commodity Online) : After surpassing Malaysia as world’s largest Crude Palm Oil producer, Indonesia’s plantations are set to outdone its neighbour in higher margin.
According to Moody's Investors Service, Malaysian crude palm oil plantations have higher margins but this scenario is unlikely to persist due to limited land supply in Malaysia and the improving yield of the Indonesian plantations.
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Malaysian CPO plantations typically have higher margins than their Indonesian counterparts due to younger age of Indonesian trees.
"Nevertheless, we expect this comparative advantage to gradually dissipate as the trees in Indonesia's plantations mature to their prime ages and peak yields," the firm said in its weekly credit outlook.
Indonesia surpassed Malaysia in the 2006-2007 period as the largest CPO producer.
Malaysia and Indonesia are the world's key producers of CPO, accounting for 41 per cent and 46 per cent respectively of the global CPO production.
Moody's said the Indonesian government has also been encouraging domestic firms and Malaysian counterparts to grow their Indonesian plantations and refinery capacities.
"Indonesia produced around 20 million tonnes of CPO last year but refined only 60 to 70 per cent of that amount," it said.
In comparison, Moody's said Malaysia's IOI has a total refining capacity of 3.4 million tonnes across three plants in the country and one in Rotterdam, Holland.
"For such integrated players, the ongoing trend for pure upstream producers to expand into downstream production should have little or no impact on their credit and financial profiles given the region's chronic shortage of refined supply and secular growth in demand," it said.
"Furthermore, these integrated players already have a well-established presence in refining products, so new entrants do not raise a competitive threat," it said.
