Short Position – ESG concerns, red palm oil


ESG concerns for plastic makers

ENVIRONMENTAL, social and governance or ESG factors are already known to be a big issue in the investment scene. Investors, especially large funds, are steering their money towards ESG-compliant companies. The plastics packaging industry is one which is going to be on the radar.

Locally listed plastic packaging companies enjoyed a good run with the onset of the coronavirus pandemic largely due to the higher demand for better packaging for essentials and food, coupled with lower material costs, which are linked to the oil price. However, this could be in jeopardy now.

A recent report by Reuters has pointed out that private equity firms, which had a decade ago fallen in love with the growth prospects of the plastics industry, are now shunning the industry due to ESG concerns as environmental factors become deal breakers. Risks include new EU rules due to be brought in next year requiring packaging to be reusable or recyclable by 2030.

The report highlighted that many private equity firms are also struggling to offload investments they had earlier made in the plastics sector. However, the exception to the rule is when plastic firms are making a big effort in turning their businesses to become more environmentally friendly.

So there are new buzzwords that investors are looking for in the plastics industry. One is material efficiency and this relates to producing the same amount with reduced amounts or lower grades of raw materials. Another is closed material cycles, which refers to the reuse of material waste created during the production process for additional products, as well as the use of recycled products to create new items.

Experts reckon that plastic makers with the most positive ecological footprint possible will win, while companies that fail in this challenge will lose drastically in their value. Malaysian investors and plastics packaging companies ought to play close attention to this or risk seeing the value of their assets diminish.

Red palm oil rage

MALAYSIA’S elusive red palm oil is finally getting its global recognition when exports soared to 1,187 tonnes in 2020, compared with a mere 264 tonnes in 2019.

In recent years, India, Taiwan and Angola have become major importers of the commodity. Most recent development is the decision by China to allow the importation of red palm oil this year.

To put into perspective, red palm oil is the product from minimally processed oil palm fruits using a different technology that maintains the abundance of carotene and Vitamin E in comparison with the regular golden palm oil.

Based on the data provided by the Malaysian Palm Oil Board (MPOB), major exporters of local red palm oil are CP Hexchem Sdn Bhd, Continental Resources Sdn Bhd, Micro Nutrition Specialties Sdn Bhd and Able Perfect Sdn Bhd. However, MPOB is unable to quantify on the total annual production of red palm oil here.

Malaysian Palm Oil Association (MPOA), meanwhile, has called on its members, who are mostly integrated plantation companies with refineries, to fully tap into the red palm oil production and export opportunities.

MPOA CEO Datuk Nageeb Wahab had said that red palm oil can be produced by most integrated plantation players. In fact, these players should seize the opportunity to export red palm oil into China’s strong growth edible oils market.

Previously, the import of red palm oil was not allowed to enter China due to the colour specification in the existing Chinese Standard for Palm Oil, which was set at a maximum 3.0 red. Most of the red palm oil produced in Malaysia is detected at 7.0 red and above.

Market observers see planters with an early head-start at producing red palm oil such as Sime Darby Plantation Bhd, Sarawak Oil Palms Bhd, United Plantations Bhd and Carotino Sdn Bhd stand to become major beneficiaries to China’s latest decision. Sime Darby Plantation is one such company with plans afoot to export red palm oil into China.

Another interesting development is the record-low stock level of three major vegetable oils – palm oil, soybean oil and rapeseed oil – in China. As at end-April 2021, it stood at 1.35 million tonnes, which is 10% lower than 1.44 million tonnes recorded in May 2020.

China will likely need to replenish its depleting edible oil stocks including palm oil this year. In 2020, China is the second largest market for Malaysian palm oil with an uptake of 2.73 million tonnes, which is an increase of 9.6% from 2.49 million tonnes in 2019.

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