Sime Plantation eyes Latin America refineries

This could potentially become an extension to our operations in Europe, and be an opportunity to expand into

North America.

MOHD HARIS MOHD ARSHAD

Sime Darby Plantation Bhd chief operating officer for downstream

Sime Darby Plantation Bhd, the world’s largest palm oil planter, is looking to buy refineries in Latin America as it grapples with poor margins and mounting costs at home.

The company had Latin America “on the radar” as it looked to expand its global refining capacity, said its chief operating officer for downstream Mohd Haris Mohd Arshad in an interview.

It had set aside RM400 million to invest in refineries, though more would be needed for acquisitions, and the company might consider turning to the debt market or listing its units’ shares, he said.

“If there are opportunities for us to acquire downstream assets in Latin America, we’ll be keen.

“This could potentially become an extension to our operations in Europe, and be an opportunity to expand into North America.”

The search for assets halfway across the world comes not only at a time when the industry is being plagued by weak palm prices, but also as intensifying global scrutiny over deforestation hamstrings the plantations that are predominantly in Southeast Asia.

“Those who are only focused on upstream with no outlets to markets are on the back foot. The return on investment is not as great as it used to be, primarily due to higher cost of land and labour.

“Stronger downstream earnings on higher palm oil refining margin will mitigate some of the weakness in its upstream plantation business. Upstream earnings are now only 1.9 times larger than downstream, compared with nine times in the same quarter one year ago.”

The appeal of Latin America is its proximity to Europe, the second-biggest buyer of palm oil, according to Haris.