Optimism anticipated from Indonesia’s biodiesel move — Analysts

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KUCHING: Despite the less-than-optimistic view on CPO production, analysts still hold hopes in Indonesia’s biodiesel move to boost the sector ahead.

TA Securities Holdings Bhd (TA Research) expected a potential reprieve from Indonesia’s biodiesel subsidy, noting that CPO rallied five per cent since February 4 on the back of news that the Indonesian government is planning to provide biodiesel producers with a subsidy of 4,000 rupiah per litre.

“Admittedly, the news fell short of expectations as the subsidy only covers Public Sector Obligation (PSO) segment of the diesel market.

The volume of the subsidised diesel also capped at 1.7 million kilolitres versus 3.41 million kilolitres as earlier proposed,” it said in a note yesterday.

“But still, the measure is expected to boost demand for CPO by 0.9 million tonnes in 2015 and 1.8 million tonnes in 2016 when the mandatory blending rate raised to 20 per cent.” It also means that the PSO segment will now adopt a new pricing formula that linked to CPO price, similar to Malaysia.

Despite the limited subsidy program, it assures stable demand for biodiesel in Indonesia.

The subsidised portion is almost equivalent to 1.8 million kilolitres total biodiesel consumption in 2014.

Any additional uptake from other sectors will be an additional demand boost for CPO.

Meanwhile, Maybank Investment Bank Bhd (Maybank IB Research) said the revised biodiesel subsidy will help to address some concern over Indonesia’s willingness and ability to achieve its B10 biodiesel target given the huge disparity between CPO price (US$650 per tonne) and crude mineral oil price (US$420 per tonne) presently.

The revised biodiesel subsidy mechanism will also help provide downside price support.

“It is said that Indonesia had used less than two million kilolitres of biodiesel for its domestic consumption in 2014.

This revised subsidy will surely help Indonesia in sustaining its domestic biodiesel consumption in 2015.

“Whether Indonesia will record biodiesel demand growth in 2015 will largely depend on strict enforcement of its biodiesel mandate, and whether crude mineral oil price can rebound from its present low level.

” RHB Research Institute Sdn Bhd said Malaysia’s January local consumption surge to 311,800 tonnes was due to the local biodiesel programme, and that this combined with the one in Indonesia aided to counter the effects of low crude oil prices.

To note, January saw local consumption surging to 311,800 tonnes, likely due to the nationwide implementation of the B7 biodiesel programme.

In comparison, only West Malaysia had its mandatory biodiesel rollout last year and it was a B5 blend instead of B7.

“The rollout of Malaysia’s B7 biodiesel programme plus Indonesia’s biodiesel subsidy has helped to shake off somewhat the effects of low crude oil prices, which we believe have been the main factor weighing on palm oil,” it opined.

The tightening stockpile should help palm oil prices strengthen,” it said.