There Is No More Haze And That Is Not Good News

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A reader all the way from Scotland sent me this picture (thank you bro). A Giant supermarket branch is closing down. This is not good news. The economy is still tanking.  




Have you noticed that there is no more of that annual haze problem (jerebu) which would be clogging up our skies full steam by this time of the year?
In fact the haze has not appeared for the past two years and this year the skies are fully clear. At night you can see the stars again.
The reason being there is no more large scale land clearing for oil palm planting in Sumatera - the source of the haze.  The biggest culprits were Malaysian oil palm companies including Tabung Haji Plantations.  But they tore a hole in their pockets and have no more money for new plantations.
The real reason is the palm oil industry is quite weak - very weak.  It is because of that bio-fuel (bio-diesel) legislation in many developed countries (I have written about this before). And the consequent huge increase in vegetable oil production all over the world - which has depressed vegetable oil prices.So I am not surprised to read that Sime Darby is selling Indonesian plantation assets. Here is the news:


SD Plantation Bhd disposed Indon subsidiary PT Mitra Austral Sejahtera (MAS) 
to PT Inti Nusa Sejahtera (PT INS) for US$29.7 m (RM123.1 m)
PT MAS owns 7,074.04ha oil palm plantation Kalimantan Barat, Indon
decision to sell mainly due poor financial performance 
Since 1996, PT MAS losses totalling over RM300 m (Dec 2018)
board concluded poor financial performance no longer tenable
(OSTB : Oh really? After 33 years ??)

group’s current strategy of reviewing non-performing assets, SDP said.
(OSTB : Sounds like a good idea.)

Here is more of such news from Sime Darby, this time from Malaysia :




Sime (SDP) to dispose > 4,300 acres freehold estate land in Peninsular 
in Kuala Langat, Klang, Sitiawan, Hilir Perak, Merlimau, Kuala Muda, Kulim, Prai 

estimated proceeds > RM1bil if able to get the price it seekssale price between RM200,000 and RM250,000 per acre
described as higher band of valuation for plantation land

UP acquisition in Teluk Intan RM120,336 per planted ha 
Huat Lai offered to buy estates in NS, Melaka for RM171,533 per ha

Read more at https://www.thestar.com.my/business/business-news/2019/04/02/rm1bil-land-sale/#iuUPyMBz7u7G83L1.99


My comments : 

This is selling the family silver. 
Sime is a plantation company. 
If they are selling their plantations then what are they going to do?  
The housing market is tanking too - except maybe in Selangor and Penang.

A hectare (ha) is about 2.4 acres (?) 

So Sime hopes to get RM250,000 per acre of brownfield estate when the market is selling the same for  RM50,000 per acre (UP's buy in Teluk Intan) and RM 71,000 per acre (Huat Lai offered in Melaka / NS).  Maybe they figure there is 'oil' on the land. 

The point is oil palm is tanking. 
And it will be down for some time. 
High cost producers and high land cost producers will find it difficult to make money.

Oil palms still take four to five years to begin fruiting. 
Peak output will be a little later. 
With land acquisition, land clearing etc it could be six years.  

That is the problem. 
Where will the palm oil market be five to six years from today? 
It is not so clear anymore. 
You plant today and bite your nails for five years ?  
This type of uncertainty is not good business at all.  

Sime waited 33 years to realise the Indon investment was bad.  
That long? Reminds me of this song :

. . . for twenty-four years
I've been living next door to Alice
Twenty-four years just waiting for a chance

To tell her how I'm feeling, maybe get a second glance

For every problem there is always a solution.

The easy money and easy land days are over. 
We have to catch up with the real world.

The economy has to be fully liberalised and opened up. 
There is not enough of the free market in the country.

Posted by Syed Akbar Ali 

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