China's snack-food demand boosts palm oil sales

China's snack-food demand boosts palm oil sales

Bloomberg, Jakarta/Beijing

Malaysia's IOI Corp. and Indonesia's PT Astra Agro Lestari are
selling more palm oil in China, the world's biggest consumer of
the edible oil, as rising wages and growing city populations
stoke demand for snacks and fast foods.

Palm oil demand in China almost tripled between 2000 and 2004
to 3.71 million tons, U.S. Department of Agriculture data shows.
Prices of the oil rose 79 percent in the last four years, pushing
up profit at IOI, Malaysia's largest publicly traded oil-palm
grower, whose shares have gained 14 percent in 12 months.

"The Chinese have adopted Western habits like eating potato
chips, chicken nuggets and hamburgers," said Yeo How, Chief
Financial Officer of IOI in an interview from Kuala Lumpur.
"MacDonald's, KFC, they use palm oil, too."

City populations in China have risen by 213 million people in
10 years, or more than the combined populations of Germany,
France and the U.K., government data shows. Life in the city
instead of the farm helped boost sales of instant noodles 10
percent in the last two years to 10.4 billion yuan (US$1.26
billion), researcher ACNielsen says.

ChinaFs palm oil consumption may rise 30 percent to 4.65
million metric tons in 10 years, said P. R. Thakore, vice
president of marketing at Pan-Century Edible Oils Sdn in
Malaysia. Thakore estimates China consumption at 3.57 million
tons in 2004, he said at the Vegetable Oil Market 2005 conference
in Beijing today.

Plantations in Malaysia and Indonesia produce 80 percent of
the world's palm oil, which is crushed from an oversized
pineapple-like fruit and processed into oils used in cooking,
packaged foods and in toiletries such as shampoo and soap.

"Demand is growing in cosmopolitan areas," said Franciscus
Welirang, a director at Salim Group, which has oil palm
plantations in Indonesia and noodle factories in Shanghai. "They
snack through the workday and prefer instant food. Young women,
unlike their mothers, don't cook if they can get exotic dishes
out of a jar."

About 60 percent of the cost of a pack of noodles is the
noodles, with palm oil making up about 7 percentage points of
that, Welirang said. The rest of the cost is made up of
condiments, he said, adding the costs vary depending on the type
of instant noodles.

Last year, China consumed about 12 percent of the world's palm
oil from 6.6 percent in 1999, U.S. Department of Agriculture data
shows. Demand in the year ending September 2005 may rise 11
percent from last year to 4.13 million tons, the USDA said.

The country imported $1.87 billion of palm oil, $1.5 billion
of soybean oil and $6.98 billion of soybeans to crush itself in
2004, according to customs data. These two oils make up almost
all of China's demand for edible oils.

Palm oil for August 2005 delivery rose 13 ringgit, or 0.9
percent, to 1,404 ringgit a metric ton on the Malaysian
Derivatives Exchange at 11:40 a.m. local time. The futures may be
poised for more gains.

"I don't see palm oil prices falling; there's China," said
Christine Salim, head of research at PT Samuel Asset Management
in Jakarta. She forecasts prices rising to as high as $425 a
metric ton in 12 months because of rising demand in China, the
U.S. and Europe.

China's economy grew an average 8.9 percent a year in the last
decade, government data shows. The rise in incomes as well as a
one-child policy that's shrinking families, is shaping what
people eat and how they eat it.

"In any country, the higher the standard of living, the higher
the oil and fats consumption," said Derom Bangun, chairman of the
Indonesian Palm Oil Producers Association.

IOI, which sells 15 percent of its palm oil to China, has
averaged 35 percent annual net income growth in the last three
financial years ending June 2004, allowing the company to hand
out record dividends and reduce debt.

At Astra Agro, the largest publicly traded plantation company
in Indonesia, net income growth has averaged 160 percent in the
past three years, helping the stock rise 44 percent in the past
12 months.

Malaysia, the world's largest palm oil producer and exporter,
has raised palm oil exports by about 30 percent over the past
five years, U.S. Department of Agriculture said.

Indonesia, the next largest producer and exporter, expects
exports to rise as much as 15 percent this year to 10 million
tons, Bangun said. That's after exports rose 36 percent last year
to 8.66 million tons, which beat forecasts.

"In Europe and developed country, per capita oils and fats
consumption reaches 35 kilograms a year," Bangun said.
"Developing countries consume 11-12 kilograms or so a year. China
and India have a long way more to go."

"If India or China increased their standard of living by as
little as 1 kilogram more vegetable oil per capita a year, that's
1 million extra tons of orders a year for each country," he said.