20.11.2019 (The Edge Markets MY) - KUALA LUMPUR (Nov 20): The biodiesel mandate in the world’s largest palm oil producers Indonesia and Malaysia could cause a deficit in palm oil stocks and push up crude palm oil (CPO) prices next year, said a leading palm oil industry analyst.                                          

“I think the (European CPO) price would be US$700 per tonne in the first quarter and US$750 in the second quarter of 2020,” LMC International Ltd chairman James Fry told Bernama on the sidelines of the International Palm Oil Congress and Exhibition (PIPOC) 2019.

Indonesia is set to roll out its B30 biodiesel mandate beginning Jan 1 while Malaysia will implement its B20 programme in the transport sector, which is expected to increase the local consumption to 1.3 million tonnes a year.

The blend of 20 percent palm methyl ester and 80 percent petroleum diesel will make its debut in Langkawi in the first quarter of 2020, followed by Labuan in April, Sarawak in July and Sabah later.

“The big thing is, demand will continue to come from China and India...these two countries, which are the world’s largest consumers of palm oil, will prefer to import palm oil for its cheap price.

“China, for example, does not like to import canola oil because of the US-China trade dispute,” he explained.

Both Indonesia and Malaysia contribute 87% of the global supply, creating a duopoly market of the most versatile edible oil.

Indonesia and Malaysia produce 33 million tonnes and 19.5 million tonnes respectively of the commodity a year.

However, while he sees demand continuing to grow, the plantation expert projects a slowdown in production in Indonesia, due to drought, haze and lower fertiliser use.

“I see slower growth for Indonesia, maybe by about two to three percent next year, and with the B30 mandate I’m not sure if they have the capacity to fulfil the needs,” he noted.

He said both Indonesia and Malaysia should increase the yield, including by upgrading the plantation management.

“With very good management (and you have very good management companies in this region), you can get good yields, but I think probably the issue is to get the plantation labour,” he said, pointing out that unlike Indonesia, which uses local labour, Malaysia imports its labour from Indonesia and Bangladesh.

He noted however that Cantas, a hand-held cutter for harvesting fresh fruit bunches developed by the Malaysian Palm Oil Board, is one technology that could help reduce the need for foreign labour in the plantation industry, although harvesting tall trees is more difficult than short ones.

Asked about ways to stop the haze and end the blame game between the two governments, he said: “It does not matter where the burning is happening. It is perceived as an industry problem.

“We now have the technology to identify where the oil palm trees are, using satellites. What you can do is appoint local people living in the plantation area and ask them to conserve the land, and at the end of the year, you pay them.

“This will allow them to have a strong incentive to stop outsiders coming in and burning and chopping it down. They become paid protectors of high-value forests. This is perfectly possible,” he added.