Timing right for Malaysia to introduce cooking oil futures
15/10/2024 (New Straits Times), Kuala Lumpur - It is the perfect time to introduce used cooking oil (UCO) futures in light of the growing emphasis on sustainability in the palm oil industry, according to an industry expert.
IcebergX Sdn Bhd senior proprietary trader David Ng told Bernama that Malaysia's UCO industry could play an important role in Sustainable Aviation Fuel (SAF) gaining popularity.
In Malaysia, an estimated 540,000 tonnes of waste cooking oil (WCO) from vegetables, mainly palm and animal fats, are discarded yearly without being treated.
WCO is recognised as a raw material for the biodiesel process and has great potential.
"We are slowly seeing wide adoption of UCO as part of biofuel blending requirements.
"Biodiesel blending mandates will greatly influence the UCO market; prices and supply of feedstock, in this case, crude palm oil (CPO), will also determine the availability of UCO in the market," Ng said.
Malaysia is implementing B20 mandates for the transport sector in certain regions, with the idea of preparing the entire supply chain for B30 to promote renewable energy use, reduce greenhouse gas emissions, and support the local palm oil industry.
Therefore, Ng believes higher biodiesel demand will create greater demand for UCO, pushing UCO prices higher.
"The main price drivers are crude oil and feedstock prices, such as the price of CPO.
"A high oil price environment will greatly incentivise producers to blend more UCO with crude mineral oil. Government policies or mandates for biofuel programs will also be another major price driver," he stated when asked about factors that could influence UCO futures pricing.
Malaysia, among the main producers of CPO, serves as a benchmark for pricing, playing a crucial role in the global palm oil market.
Its pricing influences international markets and sets standards for trade in palm oil products.
In 2023, Malaysia produced 18.55 million tonnes of CPO, an increase from 18.42 million tonnes in the previous year.
Bursa Malaysia recently confirmed its plan to introduce a new futures contract for used cooking oil, pending industry consultation and regulatory approval.
The move was driven by increasing demand for biofuel feedstock.