POSITIVE CATALYST: Photo shows Uggah alongside national F1 racer Alex Yoong pumping Diesel B5 into the fuel tank of Peugeot 508
during the launch of Palm Oil Biodiesel Sawit recently. The launch of Johor’s biodiesel programme has been viewed as a positive catalyst
in the plantations sector as the programme marks the country’s renewed commitment in rolling out its biodiesel plans. — Bernama photo

25/07/2013 (Borneo Post) - The recent launch of Johor’s biodiesel programme has been viewed as a positive catalyst in the plantations sector as the programme marks the country’s renewed commitment in rolling out its biodiesel plans which is crucial in absorbing excess palm oil and could potentially serve as a foundation to support the recent rise in crude palm oil (CPO) prices.

To recap, the launch of the biodiesel programme in Johor by Malaysia’s Plantation Industries & Commodities Minister Datuk Seri Douglas Uggah Embas, saw the rollout of B5 biodiesel blend for the southern region.

According to RHB Research Institute Sdn Bhd (RHB Research), the southern region will use about 37,000 tonnes of biodiesel per year, while the central region, in which usage was rolled out about years ago, will consume about 115,000 tonnes annually.

In addition, biodiesel production this year is expected to reach 300,000 to 400,000 tonnes driven by export growth.

The government is still targeting an annual 500,000 tonnes of palm oil usage for biodiesel production upon full nationwide rollout in July 2014.

Analysts Alvin Tai and Hoe Lee Leng at RHB Research viewed the low end of the 300,000 to 400,000 tonnes of biodiesel production for Malaysia is achievable, provided that export market picks up further in 2H.

Analyst Tai noted that during 2H, exports could be driven by stronger CPO and supply gap in Europe caused by higher import tax on Argentinean biodiesel.

Nevertheless, the analysts cautioned that CPO price is now trading at a US$13 premium per barrel against crude oil. “Should this premium widen, there would be a risk of export demand for biodiesel slowing down,” the analysts added.

“However, we also note that the speculative net long positions for crude oil are now at record highs, which could indicate an upside for crude oil price.

“A strong rise in the price of crude oil will help to narrow the premium at which CPO is trading, while a drastic jump in CPO price may lead to a slower-than-expected rollout in the subsequent stages as the subsidy would then be bigger,” RHB Research’s analysts opined.