Malaysia to help palm sector with new biodiesel blend rules

Workers load palm fruits onto a truck at a plantation in the Luwu district of Indonesia's South Sulawesi province, August 11, 2009. – Reuters pic
Workers load palm fruits onto a truck at a plantation in the Luwu district of Indonesia's South Sulawesi province, August 11, 2009. – Reuters pic

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KUALA LUMPUR, Oct 25 — Malaysia is set to impose a requirement for biodiesel to use 7 per cent palm oil, up from 5 per cent now, as a way of whittling down palm oil stocks and cushioning prices in the face of growing competition from other edible oils.

Industry and government officials in the world’s second-biggest palm oil producer said the “B7” biodiesel blend could be mandatory from December as talks with interested parties were nearing a conclusion.

“It’s targeted that B7 will be implemented in December. Once we switch to B7, there will be one grade – B7, not B5,” an official with the Malaysian Biodiesel Association with direct knowledge of the discussions told Reuters.

Crude palm oil is increasingly used as an additive to fossil fuels as it can reduce costs and cut down on environmentally damaging emissions.

A government official who declined to be named said Malaysia was ironing out details with car manufacturers.

The industry official said major oil players would accept the new requirement as long as engine manufacturers were in agreement. “They are quite concerned that if it’s not endorsed by manufacturers, should anything happen to the car engine, it will go back to the petrol companies,” the official said.

Malaysian plantation industries and commodities minister, Douglas Uggah Embas wants to support palm prices and reduce inventories by increasing local consumption.

“External demand is beyond our control. But at least domestically, with policies executed on biodiesel, we can increase our local consumption,” he told reporters in August.

The initiative comes at a time when Europe has announced anti-dumping duties on biodiesel imported from Indonesia and Argentina, which have been accused of selling it into the bloc at unfairly low prices.

Biodiesel producers are ready

“We are committed to providing the additional volume to sell the moment the government implements B7,” the official from the biodiesel association said. “As far as supply is concerned, it should not be a problem.”

Some market participants are sceptical the policy can work.

“At such a high palm oil price, it is very difficult to run a biodiesel plant because they will be running at a loss,” said a trader with a foreign commodities brokerage.

“Unless crude palm oil comes down to RM2,250 and crude oil is steady at US$100 (RM315), it will not be lucrative for biodiesel production,” the trader added. “It is not practical to buy feedstock at such a high price.”

At 0830 GMT today, the benchmark January palm oil contract on the Bursa Malaysia Derivatives Exchange had eased 0.2 per cent to RM2,458 per tonne after weaker-than-expected export data fanned concerns about demand.

Palm faces pressure from rising supplies of competing oilseeds. Bumper crops from South America and the United States could flood the market in early 2014 and drag down prices.

However, in September, leading vegetable oil analyst Dorab Mistry said global demand for palm oil from the biofuel industry could rise by between 2 million and 2.5 million tonnes this year.

Indonesia, the world’s top palm oil producer, recently set a requirement for a 10 per cent blend, up from 7.5 per cent.

Malaysia has exported 122,779 tonnes of biodiesel this year, data from the Malaysian Palm Oil Board showed, nearly five times the total amount sold in 2012.

Malaysian palm oil stocks currently stand at 1.78 million tonnes, having eased about 30 per cent from the record 2.63 million tonnes hit at the end of 2012.

Market players think they may stay below 2 million tonnes for the rest of the year. Growers’ estimates showed that output in October, typically the highest-producing month of the year, had slowed rather than increased. — Reuters

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