Palmtrack: UCO & tallow in the world of palm oil

Editor's Note: this article first appeared on PalmTrack, 17 December 2024. Subscribe to PalmTrack here to get the latest posts!

UCO (used cooking oil) and tallow (rendered animal fat) are two key materials used to produce biofuels like biodiesel and renewable diesel. They both come from waste products, making them sustainable alternatives to conventional feedstocks. From our May 2024 review on Singapore, you can see details from our findings, in the chart below.

UCO is simply waste oil left over from cooking and frying food. Think of the used oil from restaurants or even your kitchen—it’s collected and repurposed instead of being thrown away. In Southeast Asia and beyond palm cooking oil is a major source of UCO. The global palm oil consumption is around 75–80 million tons per year recently, with a significant portion used in cooking. If 20–30% of this were converted into UCO, it could yield 15–24 million tons of UCO annually? But there’s many reasons why the volume is not that high (read about context and issues below).

Indonesia, Malaysia and Singapore are key countries in the trade and processing of palm oil. How does UCO and tallow feature in their trade? Let’s check out the import and export statistics.

Our key findings:

• About 400k tonnes of degras from Indonesia, from domestic sources. Imports are low to negligible.

• Over 1 million tonnes of UCO plus tallow from Malaysia, as a transhipment hub,

  backed by about the same amount of imports, that is up until 2021. The divergence of UCO exports (uptrend) and UCO imports (collapse) in 2022 and 2023 is surprising? The gap of exports and imports is surely not from domestic sources. This needs much explanation. (We’ll have to ask around!)

• Singapore has been sucking in about 1.7 million tonnes annually, of UCO and tallow recently! The renewable diesel/SAF plant of Neste in Singapore has a capacity of over 2 million tonnes. We would love to report on the exports of these products, but even the EU has problems tracking this. (Quantum reported, Oct 2024: The EU is expected to introduce an HS code for sustainable aviation fuel (SAF) in the near future. The purpose of this code is to increase the visibility of trade flows and address concerns that SAF could be used to avoid anti-dumping duties on Chinese HVO.)

Malaysia. The 20-year trend for Malaysia's exports of UCO, degras, and tallow indicates that this segment emerged in the early 2000s, albeit with low export volumes. Exports experienced slight spikes in 2006 and 2013, followed by a strong upward trajectory starting in 2015. Malaysia's imports of UCO, degras, and tallow have mostly matched exports, highlighting its role for transshipment. However, Malaysian imports of UCO diverged from this trend, showing a significant upward climb from 2017 onwards, peaking at approximately 690,000 tons in 2021, then declining substantially. This drop is surprising as Malaysia has a relatively low supply of domestic UCO. What's going on? Is another HS code in play for these imports?

Indonesia. In general, imports are minimal and remain consistently so throughout a twenty-year period. Indonesia is an exporter of domestic waste oils. The trend for exports of UCO, degras, and tallow in the early 2000s was low. UCO exports had a sharp rise 2006 to 2008, followed by modest growth until 2015 when a strong upward trajectory emerged with a peak in 2021 followed by 200,000 tonnes exports annually most recently. Degras exports showed low-steady activity before surging in 2023. Might this reach 200kt a year?

Singapore. Export volumes have remained low overall, with some uptick between 2007-2009 and 2011-2013 which seem to be matched by imports, but less so for tallow. Since 2015, UCO imports have really surged, reaching over 1.2 million tonnes a year in 2023. Tallow imports spiked 2016-2019, stabilising around 500,000 tonnes annually since 2020 with a slight downward trend. Refer to our notes on Neste, which is a major processor of these raw materials into value-added products - renewable diesel and SAF, and our graphic at the top of this article.

Context and issues

Why use UCO in biofuels? It’s sustainable. UCO doesn’t compete with food crops since it’s essentially a waste product. It’s cost-effective. Repurposing UCO is cheaper than producing virgin oils. It’s good for the environment. Recycling it reduces landfill waste and lowers greenhouse gas emissions. UCO is processed through methods like transesterification (to make biodiesel) or hydroprocessing (to create renewable diesel). These biofuels can then power vehicles as eco-friendly alternatives to fossil fuels.

Tallow comes from rendered animal fat, a byproduct of the meat industry. It’s mostly derived from beef or mutton fat, but other animal fats can be used too. Tallow is valuable in biofuels as it reduces waste. Tallow turns animal byproducts into something useful. It’s energy-rich. Packed with lipids, tallow is highly efficient for biofuel production. It supports a circular economy. It’s a great way to reuse materials that would otherwise be discarded. Similar to UCO, tallow is transformed into biodiesel or renewable diesel using advanced chemical processes.

Q: How do UCO and tallow compare to other feedstocks?
A, Both have a lower carbon intensity than conventional feedstocks like palm oil or soybean oil, making them more environmentally friendly. Plus, governments often incentivize their use through renewable energy policies and standards.

Q: Are there challenges?
A. Definitely! These include:

• Limited supply: Collecting UCO efficiently can be tricky, and the supply depends on how much waste is generated.

• High demand: As more industries rely on UCO and tallow, competition for these resources is growing.

• Processing hurdles: Both require proper filtering and treatment to remove impurities before they’re converted into biofuels.

Bottom line: UCO and tallow are game-changers for sustainable energy. They reduce waste, lower emissions, and contribute to global renewable energy goals. Plus, everyone is keen on their role in the circular economy.

UCO is a great option for sustainable biofuels, but it comes with its share of controversies. These include: 

• Fraud: Some UCO gets reused in food (like “gutter oil”), which is unsafe. There’s also fraud, where virgin oil is mixed in to claim subsidies.

• Traceability: It’s hard to confirm UCO is genuinely waste, especially in global supply chains. Exporting UCO can also deprive local communities of a valuable resource.

• Environment: Collecting and shipping UCO has a carbon footprint, and some fear rising demand might lead to creating waste oil intentionally.

• Economics: UCO has other uses, like making soap or animal feed. Prioritizing biofuels could disrupt these markets or raise costs.

• Greenwashing: UCO is limited, and critics worry its “sustainability” is exaggerated, shifting focus from reducing fossil fuel use.

Key controversies: (i) China's Gutter Oil Scandal: Reports of UCO being repurposed for human consumption have highlighted safety risks and the need for stricter regulations. (ii) EU Imports: The European Union’s heavy reliance on UCO imports for biofuels has faced criticism for its environmental costs and the potential for fraud in tracing the source of UCO.

Tallow has its own controversies. These include:

• Ethics. Animal Welfare: Since tallow is derived from animal fat, its use raises ethical concerns for vegans and those opposing industrial livestock practices.Dependence on Meat Industry: Critics argue that relying on tallow for biofuels indirectly supports large-scale meat production, which has significant environmental and ethical issues.

• Environment. Deforestation Links: Increased demand for meat (and thus tallow) may contribute to deforestation for grazing land. Carbon Emissions: Although tallow-based biofuels have a smaller carbon footprint than fossil fuels, livestock farming produces significant methane emissions, offsetting some of the benefits.

• Economics and supply. Competing Uses: Tallow is also used in products like soap, cosmetics, and animal feed. Diverting it to biofuels could drive up costs for these industries. Limited Availability: As a byproduct of meat processing, tallow supply is finite and cannot scale easily to meet growing biofuel demand.

• Culture. Religious and Dietary Restrictions: In some cultures, the use of animal-derived products, including tallow, is controversial or unacceptable.

Special Report: Rainfall and Floods in Peninsular Malaysia

Since 29 November, the East Coast of Peninsular Malaysia has been inundated with floodwaters to such an extent that the Deputy Prime Minister issued a statement describing the flood situation in Kelantan and Terengganu (Peninsular Malaysia) as being worse than the severe floods of 2014. Rainfall has also flooded parts of Kedah, with water from Sungai Anak Bukit entering the official residence of the Kedah Menteri Besar and reaching up to 0.5 meters in the kitchen quarters. 

The flood death toll from northern Malaysia and southern Thailand has risen to nine with 140,896 people displaced in Malaysia and 640,000 households affected in southern Thailand, as of the time of writing. The Chana district of Songkhla province has reportedly suffered the worst floods in 50 years, triggered by three days of heavy rain in the southern region. A heavy rain warning remains in effect, with heavy to very heavy rains that may cause flash floods and overflows until early December, according to the Thai Meteorological Department.

Indeed, Met Malaysia’s Long Term Weather Outlook had predicted that November had above average anomalies in Perlis and Kedah. Rainfall for Terengganu and parts of Kelantan was predicted to be wetter, receiving >60% (about 600mm) of rainfall.  We had covered this in our Weather Update on 20 November 2024, however we note that Sabah has been downgraded from an anomaly risk. 

On 27 November, Malaysia Met issued warnings for Kelantan, Terengganu and parts of Pahang were set to receive dangerous levels of rainfall. 

On 30 November, Malaysian Met issued warnings that continuous heavy rain at danger levels is expected to occur in Kelantan, especially in Tumpat, Pasir Mas, Kota Baru, Jeli, Tanah Merah, Bachok, Machang, Pasir Puteh and Kuala Krai.

Besut, Setiu, Kuala Nerus, Hulu Terengganu, Kuala Terengganu and Marang in Terengganu are also forecasted to experience continuous heavy rain during the same period.

For December, however, Met Malaysia has predicted above average anomalies for parts of Kelantan, Terengganu, Perak, Kedah, Perlis and Sabah. Rainfall for the East Coast (Kelantan, Terengganu, Pahang) is expected to exceed >60% (about 600mm) above normal levels.

On-the-ground reports from agricultural groups in Kelantan, such as the Kelantan Farmers Association (PESAK)), indicate that 26,000ha of paddy fields have been submerged in flood waters. Some of these fields were only recently sown with seeds a few weeks ago. The sowing process for January 2025 had reportedly been already delayed due to earlier water supply issues with many farmers already unable to plant paddy for three consecutive seasons.

Two Weeks in Review [Oct 2024]

By Claudia Nyon, research@segi-enam.com

Our researchers have been tracking Southeast Asian commodities and “green” supply chains for over 15 years, and have worked in the financial sector.  There is a great deal of interest in palm oil, as its supply is heavily dominated by Indonesia and Malaysia, the two core producing countries. We are also keeping a close eye on smallholders and on Thailand as the low-carbon export capability from these segments is fascinating. Our principal, Yu Leng, keeps in good contact with industry networks in the region (including in Singapore, Kuala Lumpur, Jakarta and Bangkok) and with trade partners across the globe.

Here is a summary of some key reporting for PalmTrack Subscribers, starting with the most recent posts.

• Vessel updates are catching up. Port watch is targeted for the second week of each month, rainfall in the third week and vessel watch in the last week (and our breaks are in July-Aug and Dec).

• The #PalmTrack Weather Update on 24 October 2024 highlights significant rainfall patterns and climate conditions affecting palm oil regions in Southeast Asia:

  • Mid-Sep to Mid-Oct: Kalimantan and northern Sumatra experienced over 300 mm of rain. A potential La Niña is on the horizon. Sabah (Malaysia) areas like Kudat and Sandakan are warned of 500-600 mm monthly rainfall for December and January.

  • 30 Days to Mid-October: Intense rainfall across northern Johor to Selangor (Malaysia) and much of Sarawak, receiving up to 400 mm. Sumatra (Indonesia) faced even heavier rainfall, with some regions getting up to 700 mm. Lampung was notably drier with less than 100 mm.

  • Australia's BOM Outlook is for ENSO (El Niño-Southern Oscillation) and IOD (Indian Ocean Dipole) are neutral, but La Niña is being watched, expected to be weak and short-lived. Meanwhile, from ASMC we note that dry conditions have caused hotspots in Central and South Kalimantan, as well as parts of Sumatra.

• The #PalmTrack Analysis & Expert View, 22 October 2024, highlights challenges and developments in the biodiesel and sustainable aviation fuel (SAF) sectors:

  • Regional Biodiesel Challenges: Biodiesel in Southeast Asia is facing difficulties. Thailand and the Philippines have lowered mandates, while Malaysia struggles despite promoting palm oil. India is exploring a B6 biodiesel blend, and China’s surging used cooking oil (UCO) supply is causing angst. ASEAN lacks biodiesel trade and needs insufficient government cooperation and targeted subsidies.

  • SAF and HVO Oversupply: A major renewable diesel (RD) and SAF player shut down a plant for Q4 due to an oversupply of SAF and hydrotreated vegetable oil (HVO), with storage maxed out. The U.S. market faces challenges in 2025 with changes in tax credits and eligibility.

  • Singapore’s Biodiesel Landscape: Singapore lacks a formal biodiesel policy, and although it’s available at some pumps there remains no mandate. Alpha UCO and Neste RD operate there, though they don’t produce biodiesel. Singapore Airlines recently purchased 1,000 tonnes of SAF, but Neste produces 6,000 tonnes daily.

• The #PalmTrack Analysis & Expert View, 14 October 2024, highlights a decline in Malaysia's palm oil consumption due to biodiesel challenges under the country’s move to curtail massive diesel leakages:

  • Palm Oil Consumption Drop: Malaysia's palm oil consumption has dropped, particularly in Peninsular Malaysia, with a 30% decrease (as predicted). Experts confirmed this is linked to reforms curbing large-scale diesel subsidy leakage in the Peninsula.

  • Biodiesel Reduction Due to Diesel Reforms: Diesel reforms in Malaysia could reduce palm biodiesel usage by 15-30%, affecting large-scale flows to Thailand. While subsidies remain for fleet owners, high-income earners will be phased out. Further reforms targeting fishermen could hit biodiesel usage even more.

• From May to August 2024, #PalmTrack interviewed experts on their ASEAN biodiesel outlook, in our 11 October 2024 report:

  • Key topics include Indonesia's potential B50 mandate, the Philippines' 3% CME push, and Malaysia's diesel subsidy reforms affecting palm FAME.

  • The biodiesel industry faces challenges like EU/US restrictions, limited regional collaboration, feedstock access issues, and competition from sustainable aviation fuel (SAF). Upcoming regulations, such as Indonesia’s palm oil export limits and PFAD phase-out, could further add pressure to the market.

The Trouble with Tallow (and Renewable Diesel?): Singapore & Globally

By Khor Yu Leng, yuleng@segi-enam.com & Claudia Nyon research@segi-enam.com 

Industry players have been agog at news from Argus reporting a pile up of tallow vessels outside Singapore shortly after production stoppage at Neste’s Singapore biorefinery slowed down purchases of tallow feedstock. Equipment failure around mid-October at the refinery put the production of renewable diesel to a standstill, as covered by us here. 

Three vessels have been pinpointed as carrying tallow and facing trouble offloading the commodity in Singapore: Stolt Renge, Stolt Sakura and Stolt Satsuki.  

We’ve tracked these vessels and our findings confirm this.

The Stolt Renge, which has a carrying capacity of 12,343 tonnes sailing under the flag of Singapore, has a current load condition of being in ballast (i.e., not carrying any cargo but containers filled with sea water to add weight). It departed from Port Klang and arrived in Singapore on 6 November, 9.15 a.m. Since late October, the Stolt Renge seems to have been shuttlingbetween Port Klang and Singapore. In early October, the Stolt Renge stationed itself in Singapore for 21 days. 

Another such ship similarly found itself stationed in Singapore for long periods of time in early October: the Stolt Sakura was stationed for 23 days before heading to Port Klang where it moved between the different anchorages within Port Klang for the next 12 days. As last checked, the Stolt Sakura is now stationed in Kuantan with a load condition of being in ballast. It has a carrying capacity of 12,817 tonnes sailing under the flag of Singapore.

Unlike the earlier ships, the Stolt Satsuki has found herself stationed in Singapore since 21 October since its arrival from Brisbane. It has a load condition of being laden with a carrying capacity of 12,342 tonnes sailing under the flag of Singapore.

The collective dates indicating inactivity in Singapore since early October coincides with reports in early October that Neste’s Singapore diesel line was taken offline after equipment failure following scheduled maintenance work. In early November, Neste reportedly also temporarily shut down its refinery in Rotterdam, Netherlands, following a fire. Neste subsequently lowered its full-year guidance for renewable products sales volumes. These delays reflect a broader supply chain issues.

Demand-side, soaring US biofuel demand is reshaping trade flows. In early November (as reported prior to the US election) significantly changed global trade flows of tallow in the past two years, boosting world trade to a new high of 2.5 Mn T in Oct/Sept 2023/24 (+24%). 

The story on tallow, as one of several diesel feedstocks, is just one facet of the broader narrative surrounding renewable diesel’s future. In the first four months of 2024, imported Brazilian tallow in the US for biofuel production surged by 377% compared to previous years, edging out US soybean farmers. From Jan to Sept 2024, reports came in that the US flooded its market with a record 3.9 billion pounds of imported UCO, up 98% year-on-year, 55% of which originated from China. 

Some experts suggest the volume of UCO imported by the US in 2024 was enough to replace the oil from more than 332 million bushels of soybeans (equivalent to Minnesota’s entire 2024 crop).Others counter that the demand for soy oil has consistently increased since food use has remained steady  since the mid-2000s after the FDA set rules on trans fat use in foods. They argue that imports are necessary to meet domestic demands for biomass-based diesel, be it feedstocks or finished products. 

Renewable diesel made from tallow and UCO has a lower carbon score than soybean oil and hence was eligible for higher tax credits in California, where a high proportion of US green diesel is consumed. 

However, with president-elect Donald Trump’s unannounced tariff plans, it remains possible that a blanket import tariff could close the door on imported (and cheaper) renewable diesel supplies. 

Coupled with Neste’s refinery disruptions, perhaps renewable biofuels in general are at risk? The Trump administration’s pick for the EPA administrator, Lee Zeldin, has already resulted in the biggest slump in soybean oil  since July 2024, as noticed by experts a few days ago. Experts typically zoom in on soybean oil as it tends to react first to any headlines related to the RFS. Historically, Lee Zeldin has consistently voted against the Renewable Fuel Standard (RFS) and soybean oil has been one of the main feedstocks used in biofuel production.

At Indonesia mining & palm oil events, and the Agri Malaysia showcase

Yu Leng attended Mining Indonesia 2024, which showcased heavy equipment, including giant tippers, and some (much smaller) electric models. 

Note: from internal analysis & presentations. For more information, please contact research@segi-enam.com.

Yu Leng also engaged in sustainable palm oil efforts in the region with recent visits in Jakarta and Sumatra. See our LinkedIn post (here) and further reflections:

At AgriMalaysia 2024. Demand for the yearly exhibition was observed by the presence of two halls as compared to one hall in previous years. Chinese suppliers were in greater attendance. Agricultural produce purchased included mushrooms and passionfruit. Discussions with Liew Yew Ann about palm oil, agronomy, mechanisation, and coconut farming prospects. The durian sector had plenty of supplies. Great effort by Yi Xuan Lai for Yara Malaysia's fertigation efforts. See our LinkedIn post (here) and further reflections:

Social media scan on palm oil @ 16 Oct 2024

Here’s a scan of some news and issues that have caught the attention of palm oil watchers, in the last three weeks! We mostly pick up on things on Twitter/X. Come here for more, https://x.com/khorreports. 

EUDR. A hot topic amongst regulators and market players, we have argued it would be a two year muddle-through. Maybe for three years, with the one year additional time? Alerts on X (1) and (2). There is positive feedback about enhanced regulations and traceability in the palm and rubber industries, including in Ivory Coast, Malaysia, and Thailand. The regulatory upgrades are being underestimated, while costs may be overestimated. Aida Greenbury praises how cocoa farmers in Ghana are preparing for the EU's Deforestation-Free Due Diligence regulations.

On prices and trade. Susan Stroud is a notable expert on soy from North America. A 25-year palm oil price chart from Malaysia's BMD is mentioned, and Indian buyers are canceling palm oil shipments due to a sharp duty hike and rising Malaysian prices. Alerts on X (1), (2), (3).

Malaysia’s palm oil consumption has dropped significantly. Diesel consumption in Malaysia is down due to subsidy reforms, but oleochemical exports may gain from Indonesia's export duty adjustments.

News on Indonesia. New data shows an increase in palm oil deforestation in Indonesia in 2022, with no data yet for 2023. The government's Food Estates program faced challenges, particularly in peat areas, due to difficult terrain and market issues. Indonesia's Food Estates project raises concerns about food inflation, with climate change, a weak rupiah, and high imported food prices posing potential risks.

News from India. India's palm oil yields are around 12 tonnes/hectare, lower than major producers like Malaysia and Indonesia. India's vegetable oil imports dropped 30% in September due to lower demand and high prices, following higher imports in July-August. 

Palm oil is used in the energy sector and in renewables. Gas oil and Brent crude are key factors for palm oil market watchers. An oil asset map from @SPGCI provides detailed insights into the Middle East. Energy, beyond food and personal care, is crucial for the palm oil sector. The rapid growth of renewables is important. By 2030, solar PV and wind are expected to double their share to 30% of the global power mix, meeting around half of global electricity demand. (Palm oil biomass should count in the dark green “other renewables” segment.) But there’s always a risk of being called out on greenwashing… The UK advertising watchdog ruled Virgin Atlantic’s “100% sustainable aviation fuel” ad misleading and instructed them to clarify the environmental impact in future ads (note: SAF is a technical term and it still contains fossil fuels). 

Catch up on interviews with BFM

By Claudia Nyon, Research Associate, research@segi-enam.com 

Here’s a belated update on two BFM interviews back in August.

Yu Leng was on BFM’s Morning Run on 26 August 2024 to provide her insights on the increase of rubber prices against the impending implementation of the European Union’s Deforestation Regulation (EUDR). Yu Leng also considered the present challenges of smallholder producers of palm oil and rubber. The full podcast may be found here. 

Key points included: 

• Malaysia’s rubber yield may sound low but specialists think that trees are overcounted. Thailand has faced challenging wet weather conditions and output is down but on the other hand Malaysia’s output is up. Malaysia’s ranking in global production is below.

• Commodities are handled by different government agencies or statutory boards in Malaysia. There is one for palm oil, rubber, pepper and so forth. (Agronomists seem to complain about these as “silos”). Another complexity in rubber is that different zones have different farmer income models, notably for profit sharing or share cropping. 

• Rubber is largely produced in the northern states, where palm oil has not taken over these dryer regions. Smallholder experts think that (the true) rubber farmers needing help are individuals in remote areas. But domestically, there has been an understandable push for group farming (with hired/migrant labour) near towns. Perhaps a majority of rubber is produced under profit sharing, and this may need more consideration in current policy. 

A few extra points that didn’t make it, owing to time constraints:

• A near geographical monopoly concept exists and persists in Malaysian regulations. The ideal is a farmer having multiple mills to sell for then will there be better prices for a standard product. But mills have a clear incentive to partner with their smallholders for product quality and international ESG standards. 

• A lot can be gained from having information on the location of ultra low-yielding oil palms (“dura contamination” in industry parlance, where yields are -56% of normal yield). The Malaysian Palm Oil Board (MPOB) has invested a lot in detecting via genomic testing. Seeds can be verified for normal yield. There is a marginal cost increase for a major gain in production. One in eight oil palms in Malaysia are ultra low-yield, i.e., financially impaired. This is pretty surprising. 

• However, the industry needs to reconsider how they can expand these good practices from planting material all the way to harvesting and field logistics, and fairer prices. 

Yu Leng was also invited to give her take on Malaysia’s latest pledge to halt new palm oil plantations in forested areas on BFM’s Top 5 at 5, on 19 August 2024. Deforestation regulations such as the EUDR were raised and how its shaking up global commodity supply chains with origins competing against each other to sell high value add products, however limiting land might cause liberal state development policies to clash against federal powers over exporting and licensing via the MPOB. The full podcast may be found here. 

Editor’s Note: this clash between state and federal powers over the ban on new palm oil plantations in forested areas has recently materialised in the Kuala Nerus district, Terengganu. As reported by Malaysiakini in September (paywalled), Pure Green Development Sdn Bhd submitted an environmental impact assessment (EIA) to clear a state-owned peat swamp forest to develop a palm oil plantation. Following reports, the Department of Environment rejected Pure Green’s EIA (paywalled) and the Plantation and Commodities Minister, Johari Abdul Ghani, issued a statement (Bahasa Malaysia only) that the government’s bar against new palm oil plantations in forested areas still remains in force and referred to the Malaysian Sustainable Palm Oil (MSPO) certification policy.

SIIA Publishes 6th Edition of the Haze Outlook Report

The Singapore Institute of International Affairs (SIIA) launched the latest Haze Outlook Report on July 8th 2024. The report provides a risk assessment of the probability of a transboundary haze incident affecting Indonesia, Malaysia, and Singapore for the year ahead. This research was supported by Segi Enam Advisors, looking into weather factors, the impact of fires, and commodity prices.

Khor Yu Leng, Associate Director (Sustainability) at the SIIA and Principal of Segi Enam Advisors, commented "Technological advancements and sustainability practices are transforming how we manage and prevent fires. These innovations hold the potential for long-term environmental health and sustained market access."

Download the full report here!

Reported by Nithiyah Tamilwanan (research@segi-enam.com) | 8 July 2024

Testimony for Parliamentary Select Committee on Rubber Downstream Issues and Goodyear's Departure

The impending closure of the Goodyear Tire and Rubber factory in Shah Alam has stirred up public concerns. Goodyear announced that this was part of its “Goodyear Forward corporate restructuring program, aimed at delivering $1 billion in cost reductions by 2025.” However, with over 500 workers impacted by this decision, the Parliamentary Special Select Committee on International Relations and Trade (chaired by Member of Parliament for Subang Jaya YB Wong Chen), met to discuss the company’s decision and the landscape of foreign direct investments in the country.

Alongside MITI, MIDA and other experts, our principal, Khor Yu Leng, was invited to shed some light on downstream problems in Malaysia that affect the automobile industry, such as Goodyear and factors behind their decision to close the Shah Alam factory.

Yu Leng started with an overview of rubber trade trends and domestic consumption over the past few years. She highlighted a significant drop in rubber glove latex use, which was down to 219,000 in 2023 from 402,000 in 2020, while tyres & tubes (from natural rubber) use were down to 26,000 from 33,000. From reports, it appears that China has taken the lead recently in global glove manufacturing.

Exports were 1.2 million tonnes (70:30 compound/mixed:natural rubber), almost entirely to China while imports were at 1 million tonnes, 70% from Thailand and Côte D’Ivoire. Yu Leng debunked narratives on shortages in rubber supply affecting downstream manufacturers in Malaysia, stating that imports are used to fill in the gaps.

She proceeded to display satellite imagery of tyre manufacturers’ plants in Malaysia, including Goodyear’s, for an understanding of their relative sizes and locations. Interestingly, Goodyear’s Shah Alam plant appeared to be layered with solar panels, which invited questions from members of the select committee.

Yu Leng proceeded to draw comparisons between the Thai and Malaysian rubber cities located in Hat Yai and Kedah, respectively. She cited the presence of major companies like Micheline, Schlumberger and Malaysian condom manufacturer Karex-Innolatex at the Thai rubber city, along with better connectivity to ports than the rubber city in Kedah. Malaysia’s motor vehicle production was also only a third of Thailand’s in 2022 due to a lack of competitiveness, an over-reliance on the domestic market and shortages of skilled workers, amongst other factors. Yu Leng also shared insights from rubber suppliers on vehicle sales, competition in the tyre sector from China producers, margins and costs, and shifts in natural rubber supplies.

At the end of her presentation, Yu Leng briefly shared on labour issues plaguing the rubber industry in Malaysia. From DOSM statistics, it seems that 14 percent of our workforce is made up of foreign workers (some say this should be doubled), with international NGOs alleging that there are 200,000 victims of modern slavery in Malaysia. Yu Leng underscored the millions in labour reparations paid out by companies such as TopGlove, Goodyear and ATA-Dyson, and also shared her preliminary calculations on other wage costs, such as transport and housing, that should be borne by glovemakers.

She also highlighted a few instances of new policy thinking on labour, including former Sabah chief minister Harris Salleh’s suggestion to extend the duration of foreign worker permits from one to 15 years. Yu Leng added that this extension should come with a family-based approach, ensuring that children of foreign workers have access to healthcare and education. Additionally, the Plantations and Commodities Minister recently suggested making oil palm harvesting a specialist job to enhance youth involvement in the industry and in hopes of solving labour shortages. She then referred to reports citing 192,655 “excess workers” from manufacturing & services, but plantations fear hiring on “forced labour” concerns.

Upon the adjournment of the hearing, members of the select committee held a press conference at Parliament to sum up their findings. Yu Leng was also invited to share her insights with members of the press. View the full press conference here.

Reported by Nithiyah Tamilwanan (research@segi-enam.com) | 25 March 2024