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Sime Darby Plantation looking downstream for growth

Kuala Lumpur

MALAYSIAN oil palm grower Sime Darby Plantation plans to boost its refining capacity and produce more higher-margin products in a bid to cut its exposure to volatile palm oil prices, an executive told Reuters.

Plantation company profits were hammered last year by a 15 per cent fall in benchmark palm oil prices to a three-year low. Prices are expected to recover this year, but only by 3 per cent, according to a Reuters poll.

"You see high levels of volatility impacting your bottom line because of market prices. Downstream, on the other hand, is a bit more consistent," said Mohd Haris Mohd Arshad, chief operating officer downstream of Sime Darby Plantation, the world's largest oil palm plantation operator by area.

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"It's not only us, even the government is saying the focus for plantation companies is on downstream. You want to have that consistency in your income," Mr Mohd Haris said.

About 80 per cent of Sime Darby Plantation's net profit currently comes from its upstream business - the crude palm oil produced from about 600,000 hectares of plantations spread across five countries.

Sime conducts basic refining on 70 per cent of the roughly 2.5 million tonnes of crude palm oil it produces annually - about 4 per cent of global output - and sells the remainder to other refiners.

Mr Mohd Haris said Sime Darby plans to increase its refining capacity of 3.8 million tonnes a year by expanding existing plants and via new refineries in key markets India and China. The company already sources fruit bunches and crude oil from other plantation firms to feed its refining businesses. The expansion plans include doubling capacity at its 330,000-tonne Malaysian edible oils and fats refinery, and at its 60,000- tonne domestic biodiesel refinery, he said. REUTERS