Singapore's Mewah eyeing China, Indonesia: Update

Singapore-listed palm oil refiner Mewah International (MEWI.SI) is looking at Indonesia and China as potential sites for expansion as it expects demand for the commodity to outpace supply in the long term.

The company is currently building its fourth refinery in Sabah, Malaysia, which will boost its annual capacity by 19% to 3.3 million tonnes when the US$60 million ($76 million) plant is completed by the end of the year.

Chief Financial Officer Rajesh Chopra also said crude palm oil prices (KPOc3) could fall by as much 13% in the short term after a strong rally, but long-term bullish sentiment for the commodity will be intact due to strong demand.

 

“Palm oil demand growth is expected to outpace supply growth and the same should put pressure on prices in the long run,” Chopra told Reuters in an interview on Monday.

 

“Prices have increased sharply in the last six months, though there has been some easing up recently. There could be a further price correction in the near term from current levels of around 3,600 ringgit (1,505) to probably 3,200 or 3,300 ringgit before they start increasing again.”

 

Malaysia’s benchmark palm oil price has rallied from a low of 1,331 ringgit per tonne during the 2008 financial crisis to as high as 3,967 ringgit last month. It touched a two-week top of 3,699 ringgit on Monday.  

“Correction has been due to demand easing after the festival season was over and the industry expecting better weather this year than last year,” said Chopra.

COMPETITIVE POSITION  

Mewah, which raised US$213 million in its Singapore listing last year, sold 77% of its 3.85 million-tonne sales volume in 2010 to business customers in bulk while the rest were sold as consumer products.

 

Aside from the Malaysian refinery, the company is constructing two packaging facilities in China, to be completed by 2013.

 

“Refinery in China is a matter of time. We will start with packing plants and timing of refinery will depend upon overall industry developments and our competitive position,” Chopra said without giving a timeframe for the expansion.

 

Mewah has been in China for eight years but the world’s most populous nation has only contributed less than 1% of its total revenue.

 

Major players like Wilmar International (WLIL.SI), the world’s largest palm oil producer, and Cargill dominate China’s edible oil market but Beijing’s price controls meant to rein in inflation are putting pressure on their margins.

 

This has prompted Mewah to supply its products to corporate customers, where the price is not regulated by the government, said Chopra.

 

Shares of Mewah have fallen nearly 5% this year, underperforming a 4% drop in the broader market <.FTSTI>. But it has fared better compared with bigger palm oil players like Wilmar and Golden Agri (GAGR.SI) which have dropped 6.8% and 14.4%, respectively.