5 reasons why Wilmar could beat peers in feedstock competition

Presence in Malaysia and Indonesia posts edge.

According to DBS, Wilmar credited the stronger-than-expected 2Q13 Palm & Lauric pretax margins to robust margins from high valueadded downstream products (i.e. oleochemicals and specialty fats), albeit offset by lower refining margins.

The group reiterated that with industry refining capacity potentially rising to 40m MT by the end of the year, refining margins would be adversely affected because of stronger competition for feedstock.

DBS believes Wilmar should weather this relatively better than competitors because of 5 reasons.

Here's more:

1. The group’s presence in both Indonesia and Malaysia provides greater flexibility in securing refining feedstock compared to purely Indonesian or Malaysian competitors.

The recent drop in refining margins in Indonesia had primarily been caused by importers that did not have access to Malaysian CPO bidding up Indonesian CPO prices.

2. The group’s presence in destination markets through its own refineries and JVs (i.e. in China, India, Africa) provide stable niche markets for its products. This would be difficult to achieve on a standalone port refining capacities that are currently being added.

3. The group has a fleet of vessels and better logistics to keep transportation costs down, because of economies of scale.

4. The group also produces its own CPO, which provides flexibility in securing feedstock

5. The group’s integrated supply chain ensures that it can also fully realise the full value per MT of CPO it processes. We understand there is less competition in high value-add products.