12/09/2008 (The Borneo Post) - MALAYSIA is on track to ship out 143,000 tonnes of biodiesel this year, 50 per cent more than last year as biodiesel producers reap fatter margins.

Biodiesel exports in the first eight months of the year amounted to 101,835 tonnes, seven per cent higher than last year’s 95,013 tonnes, said the Malaysian Palm Oil Board (MPOB).

Based on a selling price of US$1,000 per tonne for biodiesel and other operating costs of US$100 per tonne, the break-even feedstock cost for biodiesel would be about US$900 per tonne or RM3,060 per tonne.

This implies that biodiesel is presently feasible based on current crude palm oil (CPO) prices of between RM2,300 and RM2,400 per tonne.

However, as the winter season in the northern hemisphere is coming, we expect biodiesel exports to the US and Europe to soften as palm oil-based biodiesel freezes during cold weather.

Hence, blenders and consumers prefer to use biodiesel based on other vegetable oils such as rapeseed.

Of concern is also the weakening crude oil prices, which will exert downward pressure on the selling prices of biodiesel.

Therefore, although biodiesel margins are expanding now, they could narrow in the future.

Sime Darby used to produce 290,000 tonnes of biodiesel capacity annually.

However, its two plants in Malaysia have been converted into oleochemical facilities while the one in Rotterdam (200,000 tonnes per year) has not commenced operations yet.

Kulim’s biodiesel plant was also converted into an oleochemical facility as previously, biodiesel was not feasible due to high CPO prices.

Among the companies under our coverage, Wilmar International has the largest biodiesel capacity of 1.15 million tonnes annually.

Recently, Wilmar indicated that it may ramp up its biodiesel production capacity by another 50 per cent.

We believe that the amount of biodiesel exports is still not significant enough to absorb the country’s high palm oil inventory level of 1.85 million tonnes.

Falling crude oil prices and a supply imbalance are also expected to continue to dampen CPO prices.

Hence, we maintain an ‘underweight’ on the plantation sector.