Focus on the food side of oleochemicals

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Oleon’s presence in Malaysia puts it close to the ample supply of oil palm feedstocks as well as being closer to emerging markets

With Southeast Asia firmly becoming the centre of the oleochemicals industry, other established players from developed nations are also now looking to establish their manufacturing operations in the region. One such player is Oleon from Belgium.

Just over two decades ago, the Asia-Pacific region had no place on the global oleochemicals map. Almost 90% of the production of fatty acids and alcohols and almost 100% of all other basic oleochemicals were produced in the US, Europe and Japan.

Today however, global fatty acid expansion, excitement and innovation is centred in Asia. Indeed, as Asian palm oil plantation companies with deep pockets continue to vertically integrate their operations and invest more in downstream processing of their feedstock, the balance is shifting even more to Asia and Southeast Asia, specifically.

This in turn has attracted traditional oleochemical players to want to be closer to where the action is.

One such company is Belgium based Oleon. Formerly known as Oleofina or Fina Oleochemicals, it has been serving the oleochemical markets since the early days of oleochemistry in the 1950’s: in the past within the PetroFina group and since 2000 as an independent company supported by major Belgian financial groups as shareholders.

Such is the fast changing nature of this industry that today, it has exited the biodiesel market, six years after investing in a 100,000 tons plant in Europe. It has now set up a plant in Malaysia and Business Circle posed some questions to its KL-based Managing Director, James de Caluwé.

From the traditional global companies which developed the oleochemicals industry more than 100 years ago, only Kao Corporation of Japan remains fully committed. What are the driving forces behind this exit strategy?
Actually, Oleon is also one of the traditional global companies in Oleochemicals. The reason why all the other have left is that during the 1990s the landscape changed from downstream integration to an upstream integration especially because of the South-East Asian palm oil groups. Only some niche players who were not part of a downstream group or company remained and were able to take niche parts of the market.

Can you elaborate on this infrastructure issue?
With respect to the infrastructure: currently Port Klang (both Northport and Westport together) is ranked no. 13 worldwide as a container port, however there is only one road and one bridge connecting the ports and only two highways going to the port.

The road between the two ports is in a very bad shape causing daily traffic jams (unfortunately these are not announced on the radio and therefore go unnoticed to the wider public, but from my daily experience these jams are worse than the daily jam on Jalan Tun Razak for example).

These jams cause business disruptions (and environmental pollution, waste of people’s time) and if there is not an immediate action (and with immediate, I do not mean two years from now, but less than one year) it could cause either Northport or Westport to grind to a halt one day.

I am aware that there is a new highway being built (SKVE) which will connect Westport to the North-South Highway and Putrajaya, but unfortunately this will not help: 90% of the traffic is between Northport and Westport – the SKVE will not alleviate this traffic from the current Pulau Indah Highway and/or the bridge connecting Westport to Northport.

Also the traffic in Northport will not be affected by this new road. As I have been saying for a few years now, the concession of KESAS should be extended all the way to Westport with a proper 6 lane highway connecting Nortport and Westport over two bridges (as an alternative if one bridge is blocked). I would not object that all trucks serving my business would have to pay toll if I would be assured that no trucks are sitting in a jam delaying our operation – as you are aware most businesses are operated on a Just-In-Time principle so a jam of two hours (which is not uncommon) can cause big damage versus the cost of a few Ringgit in toll which can actually save a lot.

What are the reasons for Oleon to set up a plant in Malaysia rather than Indonesia?

Mainly due to logistics as we are using oleochemicals as our raw material and having ample supply out of Malaysia and Indonesia is important. Being in Port Klang puts us in the middle of the oleochemical producers of South-East Asia.

Which part of the oleochemicals space are you focusing on and what kind of capacity will the plant have?
We are focused on the food business. The capacity of our plant is 25,000 metric tonnes a year. To elaborate on food applications, these are mainly additives which can be alternative vegetable oil with additional health features and also active ingredients like emulsifiers and stabilizers. These products are mainly used in the processed food markets (ready-to-eat meals, frozen and or prepared meals served at convenient stores, petrol stations etc).

How does your presence in Malaysia complement your overall strategy?
Palm oil is one of our major feedstocks. Being present in Europe gives us access to tallow and rapeseed/soy and being in South-East Asia puts us close to ample supply of palm. Also, having the plant here means we are closer to emerging markets.

What has your experience been in Malaysia so far and which are the areas you are happy with and where would you like to see improvements?
Positive, both on the support and the business climate. Areas of (urgent) improvement are however needed in the infrastructure in Port Klang.

Besides the traditional areas which are driving demand for oleochemicals such as personal care, are there any new uses and new demand areas emerging? Are these areas you are hoping to tap? For instance, a report predicts by 2030, the majority of lubricants made will be biolubricants. It also looks like biopolymers is an area that is generating quite a bit of excitement with medical devices, tissue engineering and drug delivery expected to get a boost from this.
With Oleon we are one of the main drivers for the bio-lubricants sector. But to address your question, we are mainly targeting and anticipating growth in the food applications.

Photo credit: Flickr user David Nunn

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