Sabah: Plantations gear up for new year

Text size +-
Share

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 18.9m metric tonnes (MT). Exports, meanwhile, hit 18m MT with an average price over the year of RM3247 ($1034) per MT. These figures were well up on 2010 numbers, when production came in at 16.9m MT, exports at 16.7m MT and the average CPO price was RM2701 ($860) per MT.

Several different factors, however, will determine how Sabah’s CPO segment performs in the year ahead. The unpredictable impact of the weather is 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% of the country’s total CPO output. Heavy rains can 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 may not see the worst of this season’s rainy weather.

At the other end of the weather spectrum, meanwhile, there have been continuing concerns over dry weather in South America, which is 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 increase demand for palm oil, as the two are substitutes for both food and fuel uses.

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

Demand for certified sustainable palm oil (CSPO), which commands a higher price than regular CPO due to its costly certification requirements, has 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 are seeing challenging times, Sabah’s rubber plantation sector seems 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, is planning a major expansion that will include schemes to acquire plantation land in Sabah.

In 2011, Top Glove had a global market share of 26.7% in the rubber glove sector, making it the world’s largest rubber glove manufacturer. The company may 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 RM275m ($87.6m) has 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 5000 ha of land in Sabah will planted with new rubber trees.

The replanting and new planting aim to introduce higher-yielding strains of rubber trees, with the Malaysian rubber industry as a whole expected to contribute RM90bn ($28.6bn) 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.

Share

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart

Read Next:

In Asia

ESG Trends 2021: Energy Transition

The shift away from hydrocarbons and towards sustainable forms of energy continued in 2021, with new renewable generation capacity set to reach an all-time high and the international community...

In Agriculture

Report: What are the post-pandemic prospects for growth in the Saudi...

With a population larger than the other five GCC countries combined, Saudi Arabia accounted for more than 50% of the region’s food imports prior to the pandemic, and 80% of food consumed in the...

Latest

Report: What are the post-pandemic prospects for Qatar’s start-ups and...

The disruption to daily life created by the pandemic has precipitated an acceleration of the digital transformation process already under way in the corporate sector in Qatar, with private firms...