10/4/07 (Business Times) - BRAZIL, a major global producer of soyaoil, is buying more palm oil from Malaysia in an effort to meet its government's mandate on the use of 2 per cent biodiesel (B2) content in diesel next year.



Starting January 1 2008, the Brazilian Government has decreed that every diesel tank must contain 2 per cent of the renewable fuel. To implement the B2 mandate, refiners in Brazil would be required to blend 800,000 tonnes of biodiesel into 38 million tonnes of ordinary diesel that it consumes annually.

While Brazil is one of the world's largest bioethanol producer, it is now only producing less than 300,000 tonnes of soyaoil-based biodiesel per year.

"We are eight months away from the B2 target. Since Brazilian biodiesel producers cannot meet the 800,000-tonne target by the end of this year, our country has to import more palm oil to blend it with soyaoil-based biodiesel," Brazil-based Meridian Trading Ltd chief executive officer Eduardo Pessoa de Carvalho told Business Times in an interview.

"Brazil is likely to buy more Malaysian palm oil as feedstock to be blended with soyaoil-based biodiesel because of its lower price," he added.

Also present was Meridian Trading international trade director Iderlon Azevedo, who highlighted that another reason for the heightened palm oil demand in Brazil is the increasing awareness that palm oil is a healthier substitute of harmful hyderogenated soyaoil in packaged food.

Since July 1 2006, the Brazilian Government has mandated the labelling of artificial trans fat content on every packaged food.

Artificial trans fat is made when manufacturers add hydrogen to vegetable oils in a process called hydrogenation. Although such processes cut costs and give food a longer shelf life, trans fat raises the level of bad cholesterol in the blood, thus increasing the risk of heart attacks and strokes.

"More and more Brazilian food manufacturers are starting to use palm oil as a healthier substitute to soyaoil. Palm oil in its natural semi-solid form does not need to be hyderogenated, and therefore, palm oil-based spreads are ideal for baking cookies and cakes," Azevedo said.

Established in 2003, Meridian Trading started off with the buying and selling of soyaoil. Now, it is buying more palm oil as it diversifies its trading portfolio.

Pessoa de Carvalho is the honoury consulate for Malaysia in northeast of Brazil, while Azevedo used to work for Malaysian Palm Oil Council's (MPOC) branch office in Sao Paolo.

Last year, Brazil bought 33,222 tonnes of palm oil from Malaysia, almost two-and-a-half times more than 2005's 14,620 tonnes.

"This year, our country will buy more palm oil," Azevedo said, adding that Meridian Trading was in Kuala Lumpur to meet major suppliers and place orders for more palm olein to be sold to diesel distributors in Brazil.

Last year, Brazil produced 54 million tonnes of soyaoil. This year, Meridian Trading forecasts the figure to go up by seven per cent to 58 million tonnes.

Meanwhile, Azevedo forecasts crude palm oil (CPO) prices to leap further at the end of this year.

"CPO prices are likely to stabilise around RM2,000 per tonne in the short run. About seven to eight months from now, prices can leap further as burgeoning demand for edible oils continue to outpace supply," he said.

Yesterday, CPO for delivery in June, the third-month benchmark contract rose as high as RM25 a tonne on the Malaysia Derivatives Exchange, the highest intraday price since January 12 1999. By the end of the day it closed at RM2,132 per tonne.

CPO prices usually move in tandem with soyaoil as both commodities are widely used in foods, cosmetics and biodiesel.