Bakrie Sumatera Betting Big on Bull Market for Palm Oil Next Year

PT Bakrie Sumatera Plantations, a midsize producer of crude palm oil and rubber, appears to be placing large bets that a full economic recovery next year will push up prices of CPO and its derivative products, analysts said.

The company has announced plans to spend more than Rp 3 trillion ($315 million) next year on acquisitions of palm oil plantations and oleochemical factories, which turn the oil into useful chemicals.

“If the economy recovers fully next year, their plan could be successful,” Herman Kuswanto, an analyst at PT Indo Premier Securities Indonesia, said on Monday.

Bakrie Sumatera president director Ambono Janurianto said the company was attracted by the profit margins available in the oleochemical business.

“The industry average is around 15 to 30 percent,” he said.

The company had a 14.5 percent net profit margin in the first nine months of this year, down from 18.9 percent a year earlier.

A unit of the PT Bakrie & Brothers conglomerate, Bakrie Sumatera is planning a Rp 4.9 trillion rights issue in January to help finance several acquisitions, including the purchase of distressed oleochemical refinery plants owned by units of Domba Mas. The company also plans to invest Rp 960 billion in three other palm oil plantation companies.

Herman questioned why Bakrie Sumatera would buy only the oleochemical assets from Domba Mas, and not their palm oil plantations, while investing in other plantations.

“It could be it would be too expensive to take all the Domba Mas assets, or that could be the next stage of their plan,” he said.

The Domba Mas oleochemical plants, which are not currently in production, will make fatty alcohols and acids to be used for consumer goods such as foods and cosmetics.

Ambono said the fatty alcohol plants will produce up to 30,000 tons next year, about 100,000 tons in 2011, and reach full capacity of 125,000 tons in 2012.

He said the company would produce about 428,000 tons of CPO next year, with plans to increase output to 480,000 metric tons by 2011.

The price of CPO has been widely projected to rise to $800 to $1,000 a metric ton next year, up from $500 to 600 this year.

It peaked at $1,200 per metric ton in 2008.

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