Higher biodiesel production

Unprofitable level: At current oil prices, biodiesel plants are unable to make profits, according to Malaysian Biodiesel Association. – Reuters

Malaysia expected to increase output by 80% this year

KUALA LUMPUR: Malaysia is expected to produce 900,000 tonnes of biodiesel in 2017, up about 80% from half a million tonnes last year, while Indonesia’s production is projected to rise to 3.5 million tonnes this year from three million tonnes in 2016, according to industry expert U.R. Unnithan.

Met on the sidelines of the 28th Global Palm and Lauric Oils Conference here yesterday, Unnithan said the forecasts were based on the current pricing of crude palm oil (CPO) and oil prices.

At yesterday’s close, CPO fell 1.5% to RM2,851 per tonne.

Unnithan, who is also the president of the Malaysian Biodiesel Association, said where the current oil prices were at, biodiesel plants were unable to make profits.

“Today, the utilisation capacity is under 25%, which means at present levels, companies can only cover their variable costs but not fixed costs.

“But if they ramp up capacity to nearly 100%, then they should see some profits,” he said, adding that the biodiesel industry has survived because of the local mandate.

Palm oil can be used to produce the bio components of biodiesel grades sold at retail fuel pumps.

Commenting on Indonesia’s B20 biodiesel mandate, Unnithan said Indonesia had taken a smart move by going ahead with the implementation, provided it can get its subsidy model to work.

“I think it’s a smart move because all of a sudden, an additional three million tonnes of demand a year has surfaced. The Indonesian biodiesel market is probably as big as China’s now and for them, it’s worthwhile because oil prices now are at about US$50 per barrel,” he said.

Malaysia, on the other hand, should implement its B10 programme this year now that CPO prices had adjusted to a new level.

“CPO prices in the region of about RM2,500 to RM2,600 per tonne are sustainable in the long term for both food and fuel. At that level, one can see a steady increase in biodiesel because the additional demand can be taken up when there is additional supply,” noted Unnithan.

Meanwhile, well-known palm oil expert and chairman of LMC International Ltd James Fry found Indonesia’s B20 biodiesel mandate impressive, mainly because it is self-financing and didn’t need Government subsidy, and the export levy charged at US$50 per tonne of CPO has somewhat taken the prices up by more than US$50.

Going forward, Fry thinks Indonesia’s biodiesel mandate is going to be the most important factor in softening the decline in CPO prices later this year.

Fry did not want to disclose the outlook for CPO prices in 2017 as this would be revealed later today during his topic on “Lessons from the latest El Nino and La Nina – The Implications for Prices”.

Fry said the El Nino experienced last year was similar to the El Nino that took place in 1997/1999.

The road to full B20 implementation is a long one and several factors, including a recovery in oil prices, biodiesel exports and logistics will play an important role.

The mandate serves two purposes: lower gasoil demand and hence lower reliance on imports; and support for the biodiesel industry reeling from the effects of low oil prices and Europe’s anti-dumping duties.