Next year is a good year for palm oil industry

Spanish Member of Parliament Emilio Menendez (right) and his head of cabinet, Carlos Canicero Urabayen during their visit to the Federal Land Development Authority's Besout 6 Estate in Sungai, Perak, on Dec 6. - SAM THAM /THE STAR

FOR those in the palm oil sector, 2013 will be best remembered for the successful implementation of Malaysia’s revised crude palm oil (CPO) export duty and the abolition of the duty-free CPO export quota.

However, bearish fundamentals, ie, higher-than-expected production, a steep inventory situation as well as intensified anti-palm oil campaigns from non-governmental organisations and some Western consuming countries saw a dismal performance in the CPO price, averaging RM2,450 per tonne this year from last year’s RM2,764 per tonne.

On the flip side, the lacklustre situation is expected to improve come 2014.

Many industry players are banking on the aggressive domestic mandates for palm biodiesel by Indonesia and Malaysia to be one of the catalysts to drive CPO prices above RM2,500 per tonne next year.

The Indonesian government recently set a higher requirement for a 10% palm oil biodiesel blend, up from 7.5% previously, that will lead to more CPO feedstock needed for biodiesel production in the republic, hence prompting lesser CPO to be exported for the world market.

Malaysia too is pushing hard for the nationwide implementation of its B5 biodiesel programme by July 2014. At the same time, the Government is also studying the possibility of introducing higher blends – B7 and B10 biodiesel – in the foreseeable future.

The B5 biodiesel is a blend of 5% palm oil or palm methyl ester with diesel fuel.

The full implementation of B5 nationwide for the subsidised and non-subsidised sectors will also see about 500,000 tonnes per year being taken up from the current local palm oil inventory.

This could effectively reduce the domestic palm oil stocks to below one million tonnes, and also, the palm biodiesel initiative could provide a floor price to support CPO prices at RM2,000 per tonne.

International palm oil trader Dorab Mistry of Godrej International Ltd, however, warned that domestic mandates for palm biodiesel in Malaysia and Indonesia would only work as long as palm oil prices remained competitive with the Brent crude oil prices.

In Malaysia, the latest positive development in biodiesel has also triggered renewed interest among cash-rich plantation companies to acquire “idle” biodiesel plants in preparation for the nationwide implementation of B5 and other potential higher biodiesel blending requirements by the Government.

As at end-September, the Government had approved 60 biodiesel manufacturing licences with a total annual capacity of 6.5 million tonnes.

Only 12 biodiesel plants are in operation, with a total annual production capacity of 1.22 million tonnes from January to September this year, according to the Malaysian Palm Oil Board recently.

Hence, some quarters have opined that the Government would likely need to subsidise the higher-priced biodiesel, so that consumers are charged the same price as what they are currently paying for the diesel fuel.

There is also a need to finance the construction of in-line blending facilities for petroleum companies.

For full-national implementation, it is envisaged that some RM300mil would be needed for the setting-up of in-line blending facilities for 35 petroleum terminals and depots, with another RM300mil to RM500mil per year for additional subsidies.

Deputy news editor Hanim Adnan wishes one and all Happy New Year.