Company information

Africa’s palm oil industry to attract more investment

The Financial Times recently reported that Sime Darby, the world’s biggest listed palm oil producer, is considering plans for a 300,000 hectare plantation in Cameroon as the industry rushes to expand in Africa in response to rising demand and near-record process.

Mohd Bakke Salleh, Sime’s chief executive, said the US$2.5 billion project was the Malaysian group’s best prospect for expanding its 640,000ha land bank after a 220,000ha concession was granted in Liberia last year. “We are actively looking. We have been shown potential areas in Cameroon, and the development formula is to work with the local communities,” he said in an interview in Kuala Lumpur. Mr Bakke stressed that discussions had so far led to “nothing conclusive”, while the plantation would take many years to develop, with planting beginning at about 5,000ha a year and peaking at no more than 15,000ha.

Long-term demand for palm oil is rising as a result of population growth and changing dietary preferences in Asia, while supply is constrained by limits on plantation development in Malaysia and Indonesia, the two biggest producer nations. Indonesia, which accounts for almost half the world’s palm oil production, implemented a two-year moratorium on commercial development of forests and peat lands in January as part of an effort to conserve the country’s remaining rainforests. Mr Bakke said it was essential for Sime to find further land to defend its market leadership in the face of active prospecting in Africa by other big produces such as Singapore-based Wilmar International and Olam International. “We cannot just sit back and do nothing,” he said, noting that “other plantation players” were looking at potential in Ghana, Ivory Coast and Cameroon. Sime’s Liberia deal was part of a wave of proposed development projects by the industry last year, which included a $1.6 billion agreement between Liberia and Golden Agri of Indonesia, and a 300,000ha joint venture in Gabon announced by Olam. Equatorial Palm Oil, a UK-listed palm oil developer, has 169,000ha in Liberia.

Palm oil, although down form the 28-months highs reached last year, was trading at about USD 1,100 a tonne last week. Before a 2008 spike in food prices that pushed the commodity above $1,000 a tonne, palm oil traded at an average price of about $500 a tonne in the preceding two decades. Palm CI listed m the BRVM has seen its share price react strongly tot the increase in palm oil prices, having gained 96,97% in 20101, while Zambeef in Zambia is also planning to boost output at its palm plantation in Mpika by investing an additional $2.5 million, as it looks to become the lead exporter of crushed palm in the region.

Article written by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.


Simple Share Buttons