Malaysia Plans To Start Implementing B10 Biodiesel Program From December

© Nikkei Markets

KUALA LUMPUR (Nov 26) — Malaysia will start implementing a so-called B10 biodiesel program for the transportation sector from Dec. 1 and will expand it to the industrial sector from Jul. 1, 2019, the minister of primary industries said Monday as the country seeks to cut fuel import bill and boost local consumption of a commodity that is widely used in food-to-cosmetics.

The expanded biodiesel program is expected to consume 761,000 tons of palm oil a year, Teresa Kok said at a news conference in Kuala Lumpur. The move will also help Malaysia save about 1.64 billion ringgit ($391.13 million) in annual diesel import cost, she said.

“At the current low price of palm oil, now is the right time to implement the expanded biodiesel program (which was) deferred in 2016,” Kok said.

The biodiesel program, which aims to blend 10% of palm-based methyl ester with 90% traditional petroleum diesel for sale at retail pumps nationwide, was initially designed in 2013 in-part to cut the Southeast Asian country’s swelling palm oil inventory that weighed on prices of the commodity.

However, the program was deferred multiple times due to concerns over potential damage to vehicle’s engine that may prompt manufacturers to dishonor their warranty pledges. A steep decline crude oil prices in 2014-15 also dimmed appeal of the mixed-fuel program.

Palm oil futures and shares of palm oil producers fell. Analysts said the prices of crude palm oil is unlikely to rebound significantly in the near term after declining about 20% due to supply glut.

If Malaysia successfully shrinks inventory by raising palm oil in biodiesel usage, the move could support prices at current levels “but will not drive prices up in the short term,” said JF Apex Securities’ Analyst Low Zy Jing. Prices will likely trade between 2000 ringgit per ton and 2200 ringgit a ton for up to next six months, he said.

“There’s no expectation of shortage of a supply, so buyers do not need to hedge,” and those with stocks are trying hard to sell outstanding inventories and are unlikely to raise prices, Low added.

Shares of Sime Darby Plantation, the world’s biggest palm oil producer by acreage, fell 2.3% on Monday, while the broader Bursa Malaysia Plantation Index shed 1.5%. The most-traded palm oil futures for February delivery fell nearly 2% to 2004 ringgit on Bursa Malaysia Derivatives.

Malaysia’s palm oil inventory swelled in October to a 10-month high as production rose while exports fell, according to latest available data. Production of palm typically enters its peak season in the third and the final quarter of the year which are the wettest months in Malaysia.

Biodiesel is currently priced at 2.28 ringgit per liter, while diesel costs 2.31 ringgit per liter. Introduced in Nov 2014, Malaysia’s current B7 biodiesel program for the transport sector utilized 350,000 metric tons of palm biodiesel annually.

Petroleum companies have been given two months to switch to B10 from B7 program before its mandatory implementation from February 2019, Kok said.

Indonesia meanwhile is planning to issue a regulation on the production of B25 diesel early next year, Jakarta Post had reported in May. Once issued, the policy will replace the current regulation on B20 production, the newspaper had reported.

Malaysia and Indonesia collectively account for more than 80% of the global supply of palm oil.

– By Pei Ling Gan and Alexander Winifred
– Edited By Abhrajit Gangopadhyay

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