17/09/2012 (The Star) - CIMB Research sees minimal immediate impact on the price of crude palm oil (CPO) following news that the European Union (EU) may reduce the use of biofuels as they are now widely blamed for soaring food prices.

AFP reported that the EU may reduce the use of biofuels made from crops to 5% of total energy consumption in its transport sector in 2020, from 10%.

“We believe the immediate impact on CPO price is minimal as current usage of biofuels in the EU transport sector of 4.5% is below the 5% target,” CIMB Research said. “But this could lower future demand growth potential of biodiesel from EU.”

In 2009, the EU fixed a target for renewables to account for 20% of all the bloc’s energy consumption and 10% in the transport sector, with biofuels set to play a growing role.

The aim was to reduce greenhouse gas emissions, seen as responsible for global warming.

But a draft EU proposal seen by AFP said some biofuel production was failing to deliver hoped-for reductions in greenhouse gases because changing land use to grow crops for energy had its own adverse impact on emissions.

CIMB said the news was a surprise and that it had anticipated a slower biodiesel demand growth from the EU but did not expect the government to reduce the biofuel usage target for its transport sector to 5%.

“If this draft plan is approved and implemented, it will be negative for CPO prices in the longer term as it will limit the growth potential of biodiesel in the EU, which accounted for 66% of global biodiesel usage in 2010 and around 7% of global edible oil demand.

“This will mean future growth potential of biodiesel will be tied more to voluntary demand and be dependent on its economic viability as a substitute for diesel.

“This is unlike the previous years when most of the growth was driven by government mandates and incentives,” CIMB Research said. On Friday, CPO for third-month delivery was up RM20 at RM2,932 per tonne.