One-Third of Sales Are Operating Profit... Why General Trading Companies Are Focusing on the Food Business

POSCO Inter, Started Farm Development in 2011
Recovered Investment Costs in 6 Years of Commercial Production

POSCO International announced on the 29th that its palm business recorded sales of $163.6 million (approximately 213.8 billion KRW) and an operating profit of $52.56 million (68.6 billion KRW) last year. The company began developing farms in Papua, Indonesia, in 2011. Commercial production started in 2016, and last year it produced 208,000 tons, marking the highest level ever.

The locally established palm business company PT.BIA turned profitable in 2018. In 2022, when supply chain instability intensified due to rising oil prices and the Ukraine war, sales reached 219.6 billion KRW, and operating profit was nearly half at 102.2 billion KRW. The average annual operating profit margin of the palm business until last year was 33%. Considering that the typical operating profit margin in the core trading sector of general trading companies is around 1-2%, this is considerably high.

Panoramic view of a palm farm in Papua, Indonesia [Photo by POSCO International]

POSCO International has invested about $250 million so far in establishing palm farms and building infrastructure. Considering that the profits secured so far amount to about $230 million, most of the investment costs were recovered within six years after full-scale palm oil production began.

The company cited optimal growth conditions, efficient infrastructure, and systematic farm management as the reasons the palm business has consistently delivered results. Papua has the optimal climate conditions and soil for palm trees to grow. There are roads near the farms and a private port, making transportation convenient.

The company also explained that it plans to actively expand the value chain to advance the business. While it has focused on producing palm oil so far, it intends to refine it and expand into various fields such as food, oleochemicals, and bioenergy. Last October, it decided to build a palm oil refinery with GS Caltex. Starting next year, it will produce 500,000 tons of refined oil annually. The company is also reviewing eco-friendly biofuel production projects such as bio-jet fuel.

The company emphasized that concerns about environmental issues have decreased compared to the past. International standards for sustainable palm oil production have been established, and many companies are striving to comply with these standards. POSCO International declared in 2020 that it would produce palm oil while protecting the environment and the rights of local residents, and since then, it has obtained sustainable palm oil certification and international safety and health certifications.