Wilmar boosts growth in oleochemicals

Through acquisitions and joint ventures, the Malaysian group is pushing hard to grow share in fast-growing oleochemical markets

While other companies either struggled or sank during the economic downturn last year, Singapore-headquartered agribusiness group Wilmar International had a busy 2009, continuing its growth strategy of previous years and making two large oleochemical ­investments.

Rex Features/Gareth JJ Burgess

The business took a significant stake in ­Malaysian company Natural Oleochemicals (NatOleo) and formed a joint venture (JV) with US group ­Elevance Renewable Sciences. And despite various challenges in the oleochemicals market, the company says it plans to continue growing. Market analysts suggest that Wilmar is well placed to carry on extending its reach in the market.

The Singapore-based firm took an 81%, or $192m (€142m) stake in NatOleo – a highly significant deal given that in 2009, ­Malaysia was responsible for 25% of worldwide fatty acids production and that 20% of this came from NatOleo.

It also signed an agreement with Elevance Renewable Sciences to form a JV to build a biorefinery in Surabaya, Indonesia. The 180,000-tonne a year installation is expected to be commissioned in 2011 and will process renewable feedstocks such as palm, soybean, jatropha, mustard and waste oil to produce C18 dicarboxylic acids and esters. The plant will also produce olefins, advanced biofuels and a mixture of oleochemicals.

GROWTH STRATEGY
Oleochemical consultant Norman Ellard of Singapore-based consulting and trading company Rohen says that this aggressive growth strategy means that Wilmar is now “likely the largest oleochemical producer in the world.”

These two major deals concluded by Wilmar are, however, significantly different, as Neil Burns, managing partner for US-based consultancy Neil A. Burns, highlights. He underlines the difference by calling the NatOleo investment “evolutionary,” while he goes so far as terming the Elevance JV as “revolutionary.”

The NatOleo deal is a “classic consolidation play for Wilmar,” says Burns. “[The company] is buying a major player in a core market for them [namely fatty acids], which will bring increased market share and scale to it.”

He points out that NatOleo has a fatty acid production capacity of around 400,000 tonnes/year, which combined with Wilmar’s capacity “will result in a company with around a third of Asian fatty acid production capacity.” He says that this was therefore “a very typical, classical M&A deal for a leading commodity player seeking to establish clear market capacity leadership” and insists that this was “a good, prudent move for a com-pany with Wilmar’s market position and strong capitalization”.

The Elevance JV was, in Burns’s opinion, exciting because he believes that Elevance is probably “one of a handful of firms with new technology based on microbial and/or fermentation chemistry that have the potential to effect revolutionary change in the oleochemical and surfactant value chains.”

He believes that “the Elevance metathesis chemistry has the ability to create common surfactant and precursors from biomass feedstocks, such as various long-chain olefins, esters and diacids.” Burns notes that “by partnering with Wilmar, Elevance has access to a wide array of Asian feedstocks” and comments that he likes the venture “because it demonstrates a far-sighted willingness for Wilmar to pursue a balanced feedstock ­approach to the business.”

In addition to these two deals, the firm also recently acquired Australian company Sucrogen, which makes sugars and bioethanol, for $2.1bn, and three years ago, Wilmar merged with Malaysia’s PPB Oil Palms in a $2.7bn deal. It is also part of a $500m oleochemicals project in Indonesia that began in 2009. Burns says that while the Sucrogen deal was “not a revolutionary move like the Elevance deal, it has the potential to support the Elevance venture with access to sugar-related biomass.”

Meanwhile, he says the PPB Oil Palms deal – which was part of a three-way deal with Singapore’s Kuok Oils and Grains and PGEO Group -“was another classic consolidation play bringing Wilmar increased scope and scale in plantations and oil processing and increasing geographic reach, particularly in China.”

Ellard suggests that a reason for this growth was that “Wilmar has become sufficiently big in its traditional markets of palm oil and therefore needed to look for new areas to continue its aggressive growth profile.” He adds that oleochemicals was “a key area for this” and says that while he couldn’t speculate on any potential, “one would assume that the next logical step would be to go downstream of core oleochemicals to derivatives under the assumption that this would provide even more growth.”

Burns, too, says he has “no specific knowledge” of the company’s plans, but notes that having done so much in such a short ­period of time, “I would counsel it to make sure that all these investments can be integrated properly and strategic plans put in place through all levels of the organizations.”

CONTINUED GROWTH
He suggests that it may well “take a short breather before making major additional investments,” but adds that “it is more than capable of handling small bolt-ons.” A spokesman for Wilmar confirms that the company will continue to invest to grow its oleochemicals business and says that “further investments in downstream products are planned for Indonesia and China.”

How quickly the company expands is obviously dependent on the general economic climate and the health of the oleochemicals market. Ellard says that despite the global economic downturn, the industry is doing “reasonably well, with some sectors showing improved performance this year versus last.”

However, he admits that there are some key issues facing the industry, namely the high cost of raw materials. Burns comments that “2010 is a lot better than 2009,” but notes that “overcapacity in certain areas, such as fatty acids, continues to be a problem for the industry.” However, he says that he believes “large integrated groups such as Wilmar will survive and thrive.”

The Wilmar spokesman agrees that while “global demand for oleochemicals has regained momentum, pricing pressure remains on all fronts due to high raw material prices.” Wilmar’s main challenge for the future is “managing the growth in commodity chemicals and retaining a leading position in these products,” as well as managing its “move downstream in a significant manner.”

But he seems confident that it will ride out any storm, noting that “we see continued demand growth in basic oleochemicals and new demand for downstream chemicals.” He highlights significant opportunities in Asian and developing countries, especially as they “move up on the consumption ladder.”

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OLEOCHEMICALS
ONE TO WATCH: EMERY OLEOCHEMICALS
Another company that stands out from the crowd is Emery Oleochemicals, a 50:50 joint venture between Thailand-based PTT Chemical International and Malaysia’s Sime Darby Plantation. The company, formerly known as Cognis Oleochemicals, was named the Asia Pacific best oleochemicals company of the year in 2009 by global consultancy Frost & Sullivan and has set aside $200m (€147m) as capital ­expenditure for the next five years. “Emery has some similarities to Wilmar,” says Neil Burns, managing partner of US consultancy Neil A. Burns. He notes that “Emery is also seeking to move downstream to build on its feedstock position”, adding that the firm “also has geographic expansion ambitions.”

He says he expects it to “continue to push into North America and Europe and look to enter Latin America” and that “the question, like with Wilmar, is pacing, so it does not bite off more than it can chew.” However, Burns says he has a similar confidence in the company’s ability to thrive.

“My betting is like Wilmar, Emery will emerge from the ongoing ­market consolidation, very ­successfully.”