Pumping Palm Oil

IOI’s Lee Shin Cheng is a master at squeezing every drop from his vast plantations. The craze for biofuels is driving up prices, but caution is the watchword at this Malaysian company.

It’s very good to be the world’s largest palm oil producer–especially when a giant economy such as Europe’s decides it must combat global warming and your product is signed up for the fight. Palm oil has long been used in food and cosmetics, but if they want to turn it into biodiesel for cars and buses, that’s fine, too. So palm oil prices are soaring, and so are profits at Malaysia’s IOI Corp. The share price is also on a tear, by the way.
But IOI, started in 1969 as a distributor of industrial gas, didn’t get to be a $2.5 billion company by jumping on bandwagons. Four years after palm oil became a biofuel of choice for trendy European drivers going green, IOI hasn’t added one acre to its plantations. It doesn’t rule out making an acquisition to boost its land holdings, though. “If the price is reasonable, we’re always open to it,” says IOI Group Executive Chairman Lee Shin Cheng, not sounding like a man in hurry. “When the time comes, we’ll be there.”

And IOI has only recently gotten a license to build a biodiesel plant in Johor, on the Singapore border, that would produce 200,000 tons a year–hardly a huge amount. It says it may also invest in a second palm oil refinery in the Netherlands. “We’re not going be an early bird in biodiesel, just like we weren’t with oleochemicals [chemicals derived from fats and oils] and other areas,” he says.

Lee’s caution may be smart, for already the biodiesel craze is losing steam. The European Union kicked it off in 2003, when it mandated that by 2010, 5.75% of the fuel used for transportation be renewable, rising to 20% by 2020. A victory for the environment quickly turned into a defeat. The order set off an immediate rush to set up new plantations by clearing swaths of Southeast Asian rain forest and draining and burning peat bogs. That unleashed enormous clouds of pollution. The burning peat bogs were responsible for carbon emissions equaling 8% of the world’s total, according to a four-year study by Wetlands International and two other Dutch groups. Now the Netherlands has suspended its subsidies for palm oil fuel, and some environmental groups are backing away from it. The country has begun developing a program to certify which biofuels come from sources that are environmentally sound.

Lee doesn’t put much stock in the environmental findings, saying they’ve been cooked up by people pushing other plants, such as rapeseed, corn and soybean, whose oil also can be used for biofuel. But IOI doesn’t figure to be affected much by the environmental rethink, anyway.

Forbes