By Niluksi Koswanage
KUALA LUMPUR, March 16 (Reuters) - Small, dynamic Malaysian
planter Hap Seng Plantations
But a long-standing sales duty on crude palm oil for key producer Sabah state on the island of Borneo makes the Southeast Asian country's shipments less attractive than rival Indonesia, said Executive Director Au Yong Siew Fah, whose firm is based in Sabah.
"Palm oil margins are decent enough for us to expand from our base in Sabah, with current prices hovering around 2,000 ringgit ($540) per tonne. We are looking at 20,000 to 30,000 acres," Au Yong said, speaking in the Malaysian capital as part of the Reuters Food and Agriculture Summit.
"There is still demand for palm oil but there has been a shift to Indonesian palm oil because palm oil producers in Sabah have to pay a sales tax of 7.5 percent and this is where most of Malaysia's palm oil comes from."
The eighth largest listed palm planter in Malaysia's
benchmark plantations index <.KLPL>, Hap Seng Plantations is 51
percent owned by property-to-fertilisers conglomerate Hap Seng
Consolidated
The acquisitions, estimated at 300 million ringgit, will be financed by mix of cash and bank borrowings, Au Yong said.
"We are in a good position financially to acquire, despite the fact that degraded agricultural land in Sabah is still at a premium due to a land shortage," Au Yong said.
"We would expect to pay 300 million ringgit for these lands," he added. Hap Seng Plantations has a short term investment and cash balance of 45.7 million ringgit at the end of 2008 while its parent held 307.6 million ringgit by Sept. 30 last year.
Although palm oil prices have tumbled 56 percent to around 1,930 ringgit from a record of 4,486 ringgit last year, the cost of planted assets is still 50 percent higher than at the start of the boom in 2007.
It costs 16,000-20,000 ringgit per acre to buy agricultural land in Sabah and the neighbouring state of Sarawak -- the last frontier for Malaysia's palm oil push.
Sabah accounts for a third of the country's total palm oil output of 17.9 million tonnes and total oil palm estates of 10.6 million acres.
TAXES, CHEAPER SOYOIL WEIGH
Palm oil, used in products ranging from sweets and lipstick to biofuels, has narrowed its discount to rival U.S soyoil to the smallest in a year as stocks shrinks and demand stays buoyant.
Cargo surveyor Intertek Testing Services reported on Monday that Malaysian palm oil shipments rose 16.18 percent to 591,567 tonnes from 509,200 tonnes shipped between Feb. 1 and 15.
"Palm oil prices are in a good range of 1,900-2,000 ringgit, but we would be losing market share to U.S soyoil in months to come on price," Au Yong said.
Crude palm oil futures
To see a related item, "FACTBOX-Industry analysts call the palm oil market," please double-click on brackets. [ID:nKLR474021]
But the major worry is Indonesia, the world's top producer of palm oil, which removed in January export taxes of crude palm oil, until the minimum reference price in Rotterdam reaches $700 a tonne. This figure stood at $607.50 last week.
The state governments in Sabah and Sarawak impose a sales tax of 7.5 percent on crude palm oil when the price of the commodity crosses a threshold of 1,000 ringgit per tonne.
Crude palm oil prices in Sabah, inclusive of tax, amounted to 2,182 ringgit per tonne last week. Indonesia's cash price for the commodity is 3 percent lower.
"This tax sucks on us and the planters suffer the most on this. At a time of recession, we should be getting rid of all these taxes and staying in step with the Indonesians," Au Yong said.
"Then again, the government does need revenues to finance its budget spending but it's not a winning situation for us."
Shares of Hap Seng Plantations have fallen 15 percent over the past six months, outperforming the broader Malaysian market's drop of 17.5 percent.
Malaysia last week unveiled new spending worth $16.27 billion over two years in an attempt to keep jobs going in the Asian economy that is teetering on the edge of recession. [ID:nKLR411807]
To see a related item, "FACTBOX-The world's top 15 listed palm oil planters," please double-click on brackets. [ID:nKLR427498] (For summit blog: http://blogs.reuters.com/summits/) ($1=3.704 Malaysian Ringgit) (Reporting by Niluksi Koswanage; Editing by Clarence Fernandez)