What are the profit margins in basic oleochemicals versus refining?

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Profitability Discrepancies Between Basic Oleochemicals and Refining

In Malaysia, the production of basic oleochemicals typically generates profit margins ranging from 8 to 12 per cent. In contrast, the subsequent production of derivatives from these basic oleochemicals offers significantly higher margins, often exceeding 20 per cent. This disparity highlights a clear incentive for companies to move further down the value chain.
Margins in Basic Oleochemical Production

The production of basic oleochemicals, which are derived from refined palm oil products, provides a moderate profit margin. On average, Malaysian producers in this segment can expect to achieve margins in the range of 8 to 12 per cent. These basic oleochemicals include components like fatty acids and fatty alcohols, which serve as foundational materials for a variety of downstream products.
Higher Margins in Oleochemical Derivatives

The profitability escalates considerably when these basic oleochemicals are processed into higher-value derivatives. This segment of the oleochemical industry boasts margins that are substantially higher, frequently surpassing 20 per cent. These derivatives are integral to the manufacturing of consumer goods such as soaps, detergents, and personal care items, indicating strong demand driven by growing economies.
Declining Refining Margins Impact Strategy

The push towards higher-value oleochemicals is partly a response to the shrinking profit margins in the crude palm oil refining business. Earlier this year, refining margins in this sector plummeted to near zero, largely due to an oversupply of refining capacity hitting record levels. This challenging environment for refiners makes the more lucrative oleochemical sector an attractive alternative for investment and expansion.

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What are the profit margins in basic oleochemicals versus refining?

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