KUALA LUMPUR: Crude palm oil (CPO) supply will see more restrained growth going forward due to Roundtable on Sustainable Palm Oil (RSPO) requirements and environmental, social, and governance (ESG) concerns in obtaining financing, according to Kuala Lumpur Kepong Bhd (KLK) group CEO Tan Sri Lee Oi Hian.
“I think supply will be more restrained in growth, unlike the past, in the early 2000s. You have to comply with the RSPO requirements. No deforestation. Financing from banks is very difficult. They don’t even want to get near the word ‘deforestation’,” he said during the “Sustainable Commodity Growth” discussion at the Invest Malaysia 2021 Series 3 online forum, organised by Bursa Malaysia and JP Morgan.
Other discussion panellists were Press Metal Aluminium Holdings Bhd group CEO Tan Sri Koon Poh Keong and Yinson Holdings Bhd group CEO Lim Chern Yuan.
The discussion was moderated by JP Morgan Malaysia head of equity research Jeffrey Ng.
“In Indonesia, the government has a moratorium, so land is harder to get. And also, another requirement now is you must get your lease title before you can even start planting. Plantations also have very long gestation period, for greenfields,” added Lee.
Lee said the way forward would be to increase yield from existing plantations.
“Most of the (productivity) growth, I think, would be through brownfields. We still got some way to go, maybe 20% to 25% growth from productivity per hectare of land is possible,” he said.
Lee added that KLK is aiming to increase yield to six tonnes per hectare, from the current 4.6 to 4.8 tonnes per hectare.
“If we bring it to six tonnes, automatically the greenhouse gas emissions per tonne drops drastically and this is done through better management and also replanting with better planting materials,” he said.
Lee also noted that big multinationals are committed to sustainability and “they want to make sure that all these raw materials come from areas that are not deforested.”
He pointed out that they are also willing to pay premium prices for palm kernel oil.
“Formerly, they were paying a premium of US$15 to US$30 (RM62.30 to RM124.60) per tonne but now, due to the shortage of palm kernel oil, you can hear premiums of US$150 (RM622.80) per tonne.”
Meanwhile, Koon pointed out that globally, about 25% of the aluminium producers worldwide run on hydro electric power, and about 60% are still sourcing from coal power plants. He noted that Press Metal’s smelting plants use electricity generated predominantly from hydro electric power.
“Responsible sourcing is big news nowadays, and there is a platform where you can trade in “green” aluminium. Currently, the premium is about US$10 to US$15 (RM41.50 to RM62.30) per tonne,” said Koon, adding that due to the ESG drive, the demand for aluminium is increasing, especially in the automobile industry.
“Aluminium is important to reduce the weight of vehicles, and emissions. Aluminium materials are also easily recycled. I believe that because of this ESG drive, the (high) aluminium prices would be sustainable,” he said.
Koon also pointed out that governments are also restricting the numbers of new coal power plants, which would affect future supplies of aluminium materials.
“Renewable energy such as hydro, would not be sufficient. We believe that the growth of aluminium (production) will be restricted.”
Meanwhile, Lim said Yinson’s new floating, production, storage, offloading (FPSO) units are low emission or energy efficient.
“There are some clients will pay a premium and of course, there are some who are not willing. But we can see the shift moving towards more sustainable global supply chains,” said Lim.
“Our clients today require much more data on our ESG to even qualify to be a contractor. So, if you’re not moving towards that direction, I think you cannot even qualify to be on the supply chain,” he added.
Lim said Yinson is also requiring its vendors to step up regarding their ESG benchmarks, as the group heads towards its carbon neutrality goals in 2030.
“We even offer training to our employees, partners and vendors to encourage this change. Culture, processes and systems are not built overnight. ESG will become mandatory in the years to come,” said Lim.
Lim pointed out that green energy today is very commercially viable, and would get cheaper with more research and development going into this sector.
“We see this as an opportunity of a lifetime to participate in this generation that decarbonises the world. A new generation of cleaner and more efficient infrastructure needs to be built. From where things are moving, I don’t think it’s a luxury anymore. I think it’s a necessity to build this infrastructure,” he said.