Feb. 11 (Bloomberg) -- Siat NV, a Belgian palm-oil company, is turning to rubber output after lower prices for its main product eroded earnings.
Siat has prepared land in Nigeria and will start planting rubber there this year, Uday Pilani, chief executive officer of the company’s local unit, said by phone. The unit plans to have 10,000 hectares (24,700 acres) planted by the end of the decade.
A glut of palm oil, used in candy, biofuels and detergents, and slowing economic growth among Asian and European buyers have weighed on prices since the start of last year. That contributed to an 11 percent profit decline for Siat’s Nigerian unit in the nine months through September, prompting the move to diversify.
“We don’t want to depend on palm oil alone,” Pilani said Feb. 9 in Benin City in Nigeria’s Edo state, where Siat’s Presco unit is based. “With diversification, if one area doesn’t do well, the other should do well.”
Presco rose 5 percent to 48.48 naira in Lagos trading, its highest close on record.
The unit intends to export most of its Nigerian rubber, a commodity used to make tires and gloves. The company has already produced rubber in Ivory Coast and Gabon, according to the CEO.
While Presco sells all its Nigerian palm oil locally, where demand exceeds output, illegal importers are flooding the market with cheaper supplies, Pilani said. That will contribute to a “big percentage drop” in profit for the year ended December 2013, he said. Presco reported net income of 1.65 billion naira ($10 million) for the nine months through September.
That’s not to say it’s abandoning palm-oil expansion plans. Presco is planting 1,500 hectares this year and targeting 20,000 hectares by 2020, Pilani said. It already has 11,760 hectares planted, according to its website. Presco doubled processing capacity at its palm-oil mill to 70 metric tons an hour last year and is expanding its refinery to 300 tons a day from 100.
In total, Siat intends to invest 8 billion naira in the next eight years in Nigeria, which accounts for about 30 percent of its income, Pilani said, citing “strong” local demand for palm oil and forecasts for economic growth.
Nigerian President Goodluck Jonathan said in December that palm oil will help to drive the country’s growth outside crude-oil output. Nigeria is Africa’s largest crude producer.
Presco supplies palm oil to food and consumer-products companies operating in Nigeria, including Nestle SA, Unilever, PZ Cussons Plc and Dangote Industries Ltd. Its palm-oil and rubber expansion plans may result in annual profit of 20 billion naira to 25 billion naira, and sales of more than 100 billion naira, Pilani said, without specifying a year.
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