S&P Global Platts (22/11/2018) - A rise in Malaysia's domestic biodiesel mandate to B10 from B7 that is widely expected to be announced next month is unlikely to provide support to prevailing low palm oil prices, even though it could increase demand for CPO and result in a domestic shortfall, Palm Oil Analytics' Sathia Varqa said Thursday.

After two meetings with the Malaysian government over the past two weeks, the Malaysian palm oil market has been buzzing with talk that Prime Minister Mahathir Mohammed will announce the raising of the blending mandate to B10 from B7 from February 2019 and introduce a new B7 mandate for the industrial sector from July 2019 at a palm oil-focused event on December 11.

However, with a relatively small population of around 31 million people, Malaysia's mandate is not expected to have the same impact as 260 million-strong Indonesia's blending mandate had on prices.

Varqa estimated that demand generated by a higher mandate could absorb around 750,000-780,000 mt/year of CPO in Malaysia, up from around 500,000 mt/year currently, but other market sources doubted the total would exceed 760,000 mt/year, even by the most optimistic estimates.

CPO front month futures hit a fresh low last Friday at Malaysian Ringgit 1,773/mt or $423.08/mt, a price level not seen since 2009, when Asian CPO prices were hit by the global financial crisis.

Lower CPO prices in Southeast Asia have been caused by burgeoning production in Indonesia, low food demand and inventories in both Indonesia and Malaysia reaching record levels.Storage tanks in Indonesia are full and there have been reports of mills not accepting new fresh fruit bunches for processing, Varqa said.

However, Malaysian PME producers are highly excited by the prospect of a B10 mandate in Malaysia. The Malaysian Biodiesel Association has been lobbying hard with both the previous and current governments to increase the blending mandate.

A Malaysian biodiesel producer said he expected to see an increase in PME demand of around 40% due to the higher mandate, and although he was sold out until February, would not be offering any new PME cargoes in the international market. He said the move was positive for the Malaysian biodiesel industry and he would focus instead on understanding demand from petroleum companies in the coming months.

Another producer said the higher mandate would increase demand at her plant by 20-30%.

Malaysian PME plants are much smaller than Indonesian plants, with most plants in Malaysia able to produce 4,000-6,000 mt/month of PME, compared 20,000-30,000 mt/month at facilities in Indonesia.