PublicInvest maintains neutral on plantations amid EU resolution

KUALA LUMPUR: PublicInvest estimates that a phasing out of palm-based biofuel owing to EU green fuel targets could cause a loss of one million metric tonnes of palm oil demand for Malaysia.

According to the research house, nearly 50% of the EU's palm oil imports were used for biodiesel purposes. 

However, PublicInvest suggested that to minimise the impact, Malaysia should diversify and identify new potential developing markets such as the African region.

Furthermore, it could increase domestic biodiesel demand by pushing for a higher biodiesel mandate and expanding its use to the industrial and manfuacturing sectors. 

The research house also noted that the spread between crude oil and and crude palm oil has widened recently with Palm Oil-Gas Oil (POGO) spread growing to -US$90/mt

"The wider the spread, it would be more economical to use biodiesel for energy consumption. 

"This should bode well for both Malaysian and Indonesian biodiesel producers, bolstered by improved domestic and overseas demands, which would help ease the current high palm oil inventory level in their countries," it said.

It added that EU consumers would also suffer from a phasing out of palm oil as other types of biofuel such as tallow, soy and rapeseed oil are US$20-US$70/mt more expensive than palm methyl ester (PME).

"A higher fuel cost would eventually bring knock-on effect on other prices in the entire EU economy and eventually will further worsen the already weak spending sentiment," it said.

The research maintained its neutral outlook on the plantations sector.