Sabah: Plantations gear up for new year

As 2012 gets underway, Sabah’s plantation sector players have been keeping a wary eye on both the weather and economic forecasts, as external factors threaten to challenge palm oil production. Meanwhile, the state’s rubber plantations await a major replanting campaign this year as part of national plans for commodities investment.

Figures released in early January by the Malaysian Palm Oil Board (MPOB) showed that 2011 was a remarkable year for production, exports and average prices, welcome news for Sabah’s crude palm oil (CPO) sector.

In 2011, Malaysia as a whole recorded a new record for CPO production of 18.9 million metric tonnes (MT). Exports, meanwhile, hit 18 million MT with an average price over the year of RM3,247 (US$1,034) per MT. These figures were well up on 2010 numbers, when production came in at 16.9 million MT, exports at 16.7 million MT and the average CPO price was RM2,701 (US$860) per MT.

Several different factors, however, would determine how Sabah’s CPO segment performs in the year ahead. The unpredictable impact of the weather was a real concern for producers: at the end of 2011, the Malaysian Meteorological Department issued a warning of heavy rains in the weeks ahead, with flooding possible in low-lying areas in several of Malaysia’s most important oil palm-growing states, including Sabah and Johor, which are responsible for some 40 per cent of the country’s total CPO output. Heavy rains could cause a highly negative impact on the production of the oil palm tree.

While flood warnings in neighbouring Sarawak were upgraded to orange level this month, Sabah remained at yellow level, suggesting that the state’s oil palm plantations might not see the worst of this season’s rainy weather.

At the other end of the weather spectrum, meanwhile, there had been continuing concerns over dry weather in South America, which was responsible for a significant amount of the world’s soy output. A hike in prices due to the drought for one of CPO’s rivals in the edible and biofuel oil market might also increased demand for palm oil, as the two were substitutes for both food and fuel uses.

The ongoing impact of the eurozone crisis might also affect Sabah’s CPO producers. With Europe an important market for palm oil, concerns that the debt crisis there might worsen – thus reducing demand for both food and fuel – had also been impacting prices.

Demand for certified sustainable palm oil (CSPO), which commanded a higher price than regular CPO due to its costly certification requirements, had also declined recently: speaking in Kota Kinabalu on January 10, the plantation industries and commodities minister, Tan Sri Bernard Dompok, said that demand for CSPO had slumped towards the end of 2011, falling from around 400,000 MT in September 2011 to just over 100,000 MT in November.

But while the state’s palm oil producers were seeing challenging times, Sabah’s rubber plantation sector seemed set to receive a major boost in 2012. The year got underway with news that one of the world’s top rubber glove-makers, Malaysia’s Top Glove Corporation, was planning a major expansion that would include schemes to acquire plantation land in Sabah.

In 2011, Top Glove had a global market share of 26.7 per cent in the rubber glove sector, making it the world’s largest rubber glove manufacturer. The company might be able to benefit from ongoing national government plans for a major investment in replanting and new planting of rubber trees nationwide, with Sabah earmarked to receive a significant slice of this pie.

Under one of the country’s Economic Transformation Programme’s National Key Economic Areas, around RM275 million (US$87.6 million) had been budgeted for commodities investment. According to a recent statement by the director general of the Malaysian Rubber Board, Datuk Salmiah Ahmad, under the NKEA some 5,000ha of land in Sabah would planted with new rubber trees.

The replanting and new planting aimed to introduce higher-yielding strains of rubber trees, with the Malaysian rubber industry as a whole expected to contribute RM90 billion (US$28.6 billion) to gross national income by 2020.

Thus, 2012 looks to be a year of challenges for the plantation sector in Sabah as the state seeks to build upon its existing global position in the commodities market. With fingers crossed on the weather and hopes of a general recovery in global economic growth later in the year, the state’s plantation stakeholders will have much to address in the 12 months to come.

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