Fitch: Indonesian Policies to Push Downstream Palm Oil Activity
Indonesia's government plans to issue a five-year moratorium on new concessions to convert primary natural forests and peat land to palm oil plantations in a bid to preserve the country's sustainable environment, particularly after global criticism of out-of-control forest fires.
Fitch believes regulation limiting new planting may prompt companies to shift their strategies to focus on productivity and efficiency, increased downstream activity and the acquisition of smaller plantation companies.
Major plantation companies have already increased their downstream capacity. Golden Agri Resources Ltd boosted its refinery capacity to 4.7 million metric tonnes per annum (mtpa) in 2015 (2014: 3.5 million mtpa) and is constructing two biodiesel facilities with capacity of 300,000 mtpa. PT Astra Agro Lestari Tbk expanded its refinery capacity in 2014-2015 to 3,000 tonnes of crude palm oil per day.
Fitch also expects more consolidation, as weak commodity prices have financially squeezed palm oil companies, leaving larger operators with vertically integrated operations and stronger balance sheets better off. PT Dharma Satya Nusantara Tbk plans to acquire stake in PT REA Kaltim Plantations. Genting Plantation Berhad, a Malaysian-based plantation company, plans to purchase 21,995 hectares of landbank in Borneo's West Kalimantan province by acquiring a 100% share in Cahaya Agro Abadi Pte Ltd and Palm Capital Investment Pte Ltd. PT Sawit Sumbermas Sarana Tbk is looking for inorganic acquisition to expand its plantation area, according to news reports.