KUALA LUMPUR - Plans by Malaysia, the world's largest palm oil producer after Indonesia, to increase use of biodiesel may support prices, Malaysian Plantation Industries and Commodities Minister Douglas Uggah Embas said.
A worker in a palm oil factory in Sepang, outside Kuala Lumpur. The world's secnd largest palm oil producer plans to increase use of biodiesel to support palm oil prices. (Reuters photo)
Proposals to implement the B7 biodiesel programme next year will result in annual use of 700,000 metric tonnes of palm methyl ester, said Mr Embas. The B5 version, which involves blending 5% of palm methyl ester with 95% of fossil diesel, will be extended nationwide this July, taking demand to 500,000 tonnes, he said in a phone interview.
The oil, used in food and biofuels, climbed to the highest level since 2012 after Indonesia announced a mandate last year to increase biodiesel use even as production fell for the first time since 1998. Dry weather in Malaysia and Indonesia, which represent 86% of supply, has coincided with prospects for an El Nino later this year, which can parch growing areas in the two Southeast Asian producers.
''Our move into biodiesel is also a factor that can assist the price, said Mr Embas. Now we're only using about 200,000 to 300,000 tonnes, but by the end of next year, we should be rolling out about 500,000 to 700,000 tonnes. The ministry is discussing with automotive manufacturers the possibility of implementing B7 throughout the country in early 2015,'' said Mr Embas.
Palm oil on the Bursa Malaysia Derivatives surged 9.4% last month, extending a rebound from a more than three- year low of 2,137 ringgit (21,206 baht) a tonne in July. It was at 2,813 ringgit at the lunchtime break in Kuala Lumpur on Tuesday, heading for a third daily advance. Mr Embas hopes that prices will rally to 3,000 ringgit as biodiesel use and demand for palm by-products increase.
Indonesia in September boosted the amount of biodiesel blended with fuel to 10% from 7.5% and power plants had to blend 20% from January. PT Pertamina secured 2.4 million kilolitres of biodiesel, 45% of the 5.3 million kilolitres its seeking for this year and next, the state oil and gas company said Feb 16.
''The jump in palm prices means discretionary blending in biodiesel is no longer attractive, so growth in demand will depend on the willingness of Indonesia and Malaysia to ramp up and enforce mandates,'' James Fry, chairman of LMC International Ltd, said in an interview in Kuala Lumpur on Monday.
An El Nino may occur in the coming months, Australia's Bureau of Meteorology, said on Feb 25. Theres a 75% chance the event will happen in late 2014, according to researchers Josef Ludescher and Armin Bunde, who published their forecast in the journal PNAS last month.
While the development of El Nino would affect palm oil output, Mr Embas said the country could meet its target for record production of 19.5 million tonnes this year from 19.2 million tonnes in 2013 as measures were in place to increase yields and improve oil extraction rates.
''Water is a very important component of the palm oil plant, said Mr Embas. So any long stretch with a reduction of water definitely will have some impact. There will be a challenge. But at the same time there are some programs that we have done to increase productivity, so we hope the net effect later on will enable us to reach the target.
Mr Embas is scheduled to attend the Palm and Lauric Oils Conference organised by Bursa Malaysia Derivatives in Kuala Lumpur on Tuesday.