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Malaysia’s Plans to Boost Biofuel to Help Palm, Embas Says

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Palm oil, which is used in food and biofuels, climbed to the highest level since 2012 after Indonesia announced a mandate last year to increase biodiesel use even as production fell for the first time since 1998. Photographer: Goh Seng Chong/Bloomberg

March 4 (Bloomberg) -- Plans by Malaysia, the world’s largest palm oil producer after Indonesia, to increase consumption in biodiesel may support prices, said Douglas Uggah Embas, Plantation Industries and Commodities Minister.

Proposals to implement the B7 program next year will result in annual use of 700,000 metric tons of palm methyl ester, said Embas. The B5 version, which involves blending 5 percent of palm methyl ester with 95 percent of fossil diesel, will be extended nationwide this July, taking demand to 500,000 tons, he said in a phone interview on Feb. 28.

The oil that’s used in food and biofuels climbed to the highest level since 2012 after Indonesia announced a mandate last year to increase biodiesel use even as production fell for the first time since 1998. Dry weather in Malaysia and Indonesia, which represent 86 percent of supply, has coincided with prospects for an El Nino later this year, which can parch growing areas in the two Southeast Asian producers.

“Our move into biodiesel is also a factor that can assist the price,” said Embas. “Now we’re only using about 200,000 to 300,000 tons, but by the end of next year, we should be rolling out about 500,000 to 700,000 tons.” The ministry is discussing with automotive manufacturers the possibility of implementing B7 throughout the country in early 2015, said Embas.

Palm oil on the Bursa Malaysia Derivatives surged 9.4 percent last month, extending a rebound from a more than three-year low of 2,137 ringgit ($651) a ton in July. It was at 2,813 ringgit at the lunchtime break in Kuala Lumpur today, heading for a third daily advance. Embas hopes that prices will rally to 3,000 ringgit as biodiesel use and demand for palm by-products increase, he said.

Government Mandate

Indonesia in September boosted the amount of biodiesel blended with fuel to 10 percent from 7.5 percent and power plants had to blend 20 percent from January. PT Pertamina secured 2.4 million kiloliters of biodiesel, 45 percent of the 5.3 million kiloliters it’s seeking for this year and next, the state oil and gas company said Feb. 16.

The jump in palm prices means discretionary blending in biodiesel is no longer attractive, so growth in demand will depend on the willingness of Indonesia and Malaysia to ramp up and enforce mandates, James Fry, chairman of LMC International Ltd., said in an interview in Kuala Lumpur yesterday.

An El Nino may occur in the coming months, Australia’s Bureau of Meteorology, said on Feb. 25. There’s a 75 percent chance the event will happen in late 2014, according to researchers Josef Ludescher and Armin Bunde, who published their forecast in the journal PNAS last month.

Oil Extraction

While the development of El Nino would affect palm oil output, Embas said the country could meet its target for record production of 19.5 million tons this year from 19.2 million tons in 2013 as measures were in place to increase yields and improve oil extraction rates.

“Water is a very important component of the palm oil plant,” said Embas. “So any long stretch with a reduction of water definitely will have some impact. There will be a challenge. But at the same time there are some programs that we have done to increase productivity, so we hope the net effect later on will enable us to reach the target.”

Embas is scheduled to attend the Palm and Lauric Oils Conference organized by Bursa Malaysia Derivatives in Kuala Lumpur today.

To contact the reporter on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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