B10 mandate a small but good move for the sector

0

KUCHING: Analysts at Public Investment Bank Bhd (PublicInvest Research) laud Malaysia’s move to raise the biodiesel mandate for transport sector from B7 to B10 effective June 2, in addition to introducing the B7 biodiesel programme for the industrial sector.

Both B10 and B7 programme will collectively use up 709,000 of crude palm oil (CPO) domestically, it said, while diesel demand will reduce by 820 litres and carbon dioxide by 2.16 million per year.

“We laud the long-waiting move – which has been delayed for almost two years – which will help improve the domestic palm oil consumption,” the analyst said in a note yesterday.

“We remain positive on CPO’s outlook with an average CPO price forecast of RM2,500 per metric tonne for 2016 and RM2,600 per metric tonne for 2017.

To note, the government will increase the blending of palm methyl from seven per cent (B7) to 10 per cent (B10) with 90 per cent petroleum diesel for the transport sector while industrial sector will adopt a seven per cent mandate for palm methyl ester or B7.

“Both B10 and B7 programmes will collectively consume an annual CPO of 709,000 metric tonnes or 3.5 per cent of annual CPO production, which is relatively small,” he added. “Nevertheless, it is still a good move for the Malaysia as we are far lagging behind Indonesia, which has adopted B20 this year.

“Benefitting those plantation players with biodiesel facilities. Both programmes not only help reduce the national palm oil inventory levels, it also benefits some plantation players, namely, FGV, Genting Plantations and Sime Darby, who have ventured into biodiesel production.”

Due to the weak crude oil prices, PublicInvest Research noted that demand for biodiesel has been lacklustre over the last couple of years.

The new mandate, it said, will certainly give the local biodiesel demand a boost.

Looking at CPO exports, Malaysia’s CPO exports in May climbed 15 per cent from a month earlier, according to the cargo surveyor Societe Generale de Surveillance. Inventories might inch further downwards from the April’s level of 1.8 million metric tonnes.

“The lower palm oil inventory will provide support to the CPO prices, which have been hovering around RM2,500 to RM2,700 per metric tonne levels,” it added.

“It was another disappointing quarter for the plantation sector as majority of the results came in below expectations. Nevertheless, we opine that further downside risk is limited as CPO prices have moved up further while production is recovering albeit slowly.”

During the quarter, the firm saw that the sector was negatively impacted by weaker-than-expected production — due to extreme dry weather pattern in Indonesia and Malaysia — and higher operating costs due to lower productivity.