16/12/05 (Business Times)  -  China, which is already Malaysia's top palm oil buyer, is set to give the commodity another boost with its plan to build four biodiesel plants worth RM700 million.

A Malaysian Palm Oil Association source said the plants will have a combined production capacity of 400,000 tonnes of biodiesel a year and will likely use palm oil as their feedstock due to the commodity's competitive price compared with soyabean oil.

The source said Singapore is also joining the bandwagon in building two biodiesel plants in Jurong together with a German partner. Indonesia, too, has similar plans.

"This is a tremendous boost for Malaysia's palm oil which will support crude palm oil (CPO) prices for sure. Gone are the days where prices go below the RM1,000-a-tonne level," said the source.

However, the location of the plants in China is not immediately known.
A spokesman from the Chinese embassy declined comment.
CPO is currently trading at RM1,400 a tonne. The price once dipped as low as RM700 a tonne in 2001.
Malaysia-China Chamber of Commerce president Datuk Yong Ah Pwi said the development is not surprising given palm oil's rising potential as a food ingredient and biodiesel globally.

"China will be keen to start a biodiesel plant there due to high crude oil prices and use cheaper palm oil compared to soyabean oil, and it will want to find suitable joint-venture partners from Malaysia," Yong told Business Times.

China has been Malaysia's top palm oil buyer for several years, purchasing almost 2.8 million tonnes last year, followed by the European Union (1.9 million tonnes).

China is also expected to import more of Malaysia's palm oil from next year onwards in tandem with the former's accession to the World Trade Organisation (WTO) in 2001.

The abolition of the Trade Rate Quota effective January 1 2006 means that China will be free to import palm oil and other vegetable oils without restriction on volume.

Even though many are speculating that the Chinese Government may introduce new import requirements in its attempt to curb the free flow of imports, China nevertheless has to abide by conditions amenable to the WTO's non-tariff rules.

Global demand for biodiesel is expected to touch 10.5 million tonnes in two years, with Malaysia having the potential to capture 10 per cent of that market, or about 1 million tonnes.

Malaysia, which has done research and development on palm oil-based biodiesel since the 1980s, plans to issue nine licences to build biodiesel plants. It announced its national biofuel/biodiesel policy in August this year.