BMI View: Strong growth prospects, opportunities for increased exports and government support will be the key factors driving growth in the Malaysian agribusiness sector. Palm oil will remain the key agribusiness sector for Malaysia, although production growth will slow down in the coming years. The next challenge for the country resides in the upcoming economic integration within the ASEAN region. The ASEAN Economic Community will present some opportunities , for example in terms of poultry exports . However, it also poses risks to the future of the sugar refining sector.
Palm oil production growth to 2018/19: 7.6% to 21.7mn tonnes. Growth will be supported as companies replant mature estates and yields improve on the back of better technology.
Sugar consumption growth to 2019: 13.7% to 1.8mn tonnes. The dominance and continued expansionary activities of market players F&N, Permanis and Yeo Hiap Seng have fuelled considerable growth in the Malaysian soft drinks sector, a significant factor fuelling demand for sugar.
Poultry production growth to 2018/19: 18.2% to 1.6mn tonnes. More investment in the sector - as outlined in the 10th Malaysia Economic Plan - is expected to drive growth.
2015 BMI universe agribusiness market value: 5.1% year-on-year (y-o-y) increase to USD30.1bn, forecast to grow by 5.9% annually from 2015 to 2019.
2015 real GDP growth: 4.2% (down from 5.8% in 2014, forecast to average 4.3% from 2015 to 2019).
2015 consumer price inflation: 3.1% (down from 3.2% estimated in 2014, forecast to average 2.4% from 2015 to 2019).
2015 central bank policy rate: 3.25% eop (same as 2014, forecast to average 3.45% from 2015 to 2019).
|Palm Oil, King Commodity|
|Malaysia - BMI Agribusiness Market Value By Commodity (% of total)|
The recent increase in biodiesel production subsidies in Indonesia and the rollout of the B7 mandate in Malaysia show that the two countries remain committed to the pursuit of their ambitious biodiesel mandates, despite the sharp drop in oil prices which has made biodiesel use clearly unattractive. However, in spite of these developments, we continue to believe the impact on demand will be lower than anticipated, as implementation of the mandates remains problematic. As such, the impact on palm oil prices in 2015 will be limited. We believe Indonesia and Malaysia's attempts to keep the ailing biodiesel sector afloat are more of a long-term strategy to limit their dependence on imported oil in the coming years. The palm oil industry is a key sector for both Malaysia and Indonesia, as exports of palm oil products represent around 8% of Malaysia's total exports and as much as 10% in the case of Indonesia.
The operating environment for palm oil companies in Indonesia and Malaysia will remain challenging over 2015, as the fundamentals for the industry remain unfavourable. We believe upstream companies solely involved in palm oil plantation and milling activities will fare better than integrated players with both upstream and downstream businesses in 2015, as overcapacity in the refining segment will continue to weaken profitability in the downstream sector. Indonesian refiners will perform better than Malaysian downstream players, as they are more competitive due to lower production costs and because the recent increase in biodiesel subsidies will somewhat help the sector.
Malaysia's sugar sector is undergoing changes, as the government is partially liberalising prices and has started easing restrictions on refined sugar imports. Sugar refiners in Malaysia are likely to benefit from low raw sugar prices over 2015, however challenges are mounting for the sector amidst growing competition from smuggled refined sugar products from Thailand, as well as from the decrease in limits over refined sugar imports. Moreover, the local sector offers limited opportunities as sugar consumption in the country has peaked. The implementation of a Goods and Services Tax (GST) in April 2015 will also support sugar prices and limit consumption growth. In light of these challenges, local refiners are looking at investing in South East Asia to expand production and sales.