Sabah: Stimulating industrial growth

Text size +-

Significant investment in Sabah’s fertiliser manufacturing capacity raises the prospect of a symbiotic relationship with the pivotal palm oil segment, which could benefit the industry sector as a whole.

Recent months have seen a flurry of interest, as major chemical and bio-organic operations set up shop in the state’s palm oil industrial clusters (POICs), areas dedicated to processing palm oil.

All Cosmos Industries, a bio-organic fertiliser manufacturer, has said that it expects the $16.12m plant it is building in the POIC in Lahad Datu with Sabah Softwoods Hybrid Fertiliser to be complete by October. The factory is expected to produce 150,000-180,000 tonnes annually of bio-organic fertiliser, a product of combining chemical materials with organic matter and used to shorten planting-to-harvesting periods as well as sustaining crop yields long-term.

In May, a $24.19m plant built by Chemical Company of Malaysia (CCM) opened in the same POIC, with an expected output of 130,000 tonnes per year. CCM’s plant will produce compound fertilisers, a potassium nitrate complex that promotes efficient nutrient uptake by crops.

"With more than 1.4m ha of palm oil cultivation in Sabah, this plant is strategically located to ensure that growers are assured of secured supply and timely delivery of fertilisers,” said Hamad Kama Piah Che Othman, the chairman of the CCM Group, at the opening ceremony.

However, the standout investment in the sector is a planned $1.45bn plant by national oil company Petronas, which is expected to transform the town of Sipitang when it is completed in 2015. The Petronas Chemicals Group (PCG) plant will be built by a consortium led by Japan’s Mitsubishi Heavy Industries, comprising Apex Energy and PT Rekayasa Industri.

With estimated annual production output of 1.2m tonnes of fertiliser, the Sabah Ammonia-Urea (Samur) complex is also expected to become a catalyst for economic development, with spin-off effects for many industries, including agricultural chemicals, plastics and pharmaceuticals. The complex’s ammonia plant will be capable of producing 2100 tonnes per day of liquid ammonia, while the urea plant will produce 3500 tonnes per day of granulated urea.

“It is part of PCG’s strategy to grow its fertiliser business, as Asia-Pacific remains a key market. We are in an advantageous position, as we have close proximity to the growth markets in the region. We see sustained demand in the agricultural needs for a growing population with changing food consumption patterns and the competing land utilisation for higher crop yields,” said Wan Zulkiflee Wan Ariffin, the chairman of PCG.

Covering some 1.4m ha, which produce 5.8m tonnes of crude palm oil per year, Sabah’s palm oil industry is the largest in Malaysia and the third largest in the world, according to the Malaysian Palm Oil Board. Plans for increased availability of fertiliser in the coming years will serve to further boost the industry.

While exports are a vital part of the industry – reaching a value of $226.78m in the first three months of 2012 – there are also hopes palm oil will create downstream manufacturing opportunities, with the potential to create products such as oleochemicals, phytonutrients, plywood and bio-fertiliser, as well as the possibility of generating electricity through biomass and biodiesel.

In a May report, Agensi Inovasi Malaysia, a government think tank, projected that utilising just 20m tonnes of biomass for downstream value-adding will contribute $9.67bn to the gross national income.

While palm oil prices have more than tripled over the past decade – holding at above $967 per tonne for much of 2012 due to robust demand throughout Asia – fertiliser costs have been a constant limiter on the industry’s growth in Sabah.

The palm oil industry is by far Malaysia’s largest consumer of fertiliser, and in 2011 the crop accounted for 40-50% of the total operational cost, compared with the 30-35% prior to 2007, according to Credit Suisse. In the latest comprehensive figures, the value of Malaysian fertiliser imports rose from $781,052 in 2005 to $2.96m in 2008.

Improvements in fertiliser supply will also likely have positive implications for local rubber plantations, with the state planning a major replanting campaign this year as part of national plans for the industry to contribute $29.02bn to gross national income by 2020.

The new fertiliser plants in Sabah represent a significant opportunity to improve the sustainability of its palm oil and rubber industries while reducing dependence on imports. However, to ensure this, reserving a certain percentage of the Samur complex for the state’s palm oil plantations and downstream ambitions, rather than using it solely for exports, will likely be needed.

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

G7 seeks to support emerging markets infrastructure as BRI investment...

Amid rising inflation and debt levels in emerging markets, G7 leaders pledged in June to raise $600bn in private and public funds over five years to finance infrastructure in developing countries...

In Industry

Colombia: Se demandan servicios especializados de outsourcing

Impulsado por un gran número de trabajadores disponibles y una avanzada infraestructura de tecnología de las comunicaciones, el sector de externalización de procesos empresariales (BPO, por sus...


South Africa: Insurance regulatory changes on the cards

An overhaul of South Africa’s financial regulations, already considered some of the most robust worldwide, is likely to result in a shake up for the insurance sector. While the new system will...