KUCHING: Sources speculating that Malaysia will lose its Generalised Scheme of Preferences (GSP) status in the European Union (EU) from January 2014 onwards will reduce the competitiveness of local oleochemical players.
AmResearch Sdn Bhd (AmResearch) in its research report yesterday on the sector revealed that the existing GSP offers developing countries duty reductions of up to 66 per cent, but the EU had removed Malaysia from its list as the country was deemed an upper middle income nation.
According to Kuala Lumpur Kepong Bhd’s (KLK) chief executive officer, Tan Sri Lee Oi Hian, some Malaysian oleochemicals entering the EU would be taxed between four per cent and six per cent without the GSP.
Lee also said that the Malaysian government should put the Free Trade Agreement (FTA) with the EU on a faster burner and try to resolve some of these issues.
“This is not positive for Malaysian oleochemical companies as it would erode their competitiveness against the Indonesian producers when exporting to the EU,” outlined the research firm.
“Due to the export tax rate system, the Indonesian producers already have a small competitive advantage.
“The other major export market for oleochemicals is China.”
Producers of oleochemicals in Malaysia include the likes of Sime Darby Bhd, IOI Corporation Bhd (IOI Corp) and KLK.
“To note, the negative impact to KLK is partly mitigated by the group’s operations in EU,” AmResearch continued.
“As for IOI Corp, its oleochemical plants are located in Malaysia currently.
“However, the group is planning to develop a US$710 million palm oil processing plant in Xiamen, China, which we believe may include an oleochemical plant.
“Since KLK already has some oleochemical operations in EU, these should not be affected by the removal of the GSP.”
AmResearch went on to estimate that EU accounted for 22 per cent of KLK’s total oleochemical production capacity currently.
“KLK has about 250,000 tonnes of production capacity in EU per year. Upon completion of an additional 100,000 tonnes per year capacity at KLK Emmerich, KLK would have 350,000 tonnes per year of capacity in EU,” it said.
“We estimate the production capacity of the group’s oleochemical operations in Malaysia and China at 720,000 tonnes per year and 187,000 tonnes per year each.”
By year-end, AmResearch affirmed that KLK would have better competitive advantage due to the completion of its three refineries and an oleochemical plant in Indonesia.
The group was expected to start operations of its refinery in Belitung in the coming few months while the other two refineries and the oleochemical plant had been envisaged to commence operations by year-end.
“The oleochemical plant in Dumai is anticipated to command production capacity of 165,000 tonnes per year. In total, KLK would have refining capacity of 3,600 tonnes per day in Indonesia,” it concluded.