CIMB Research is positive on Malaysia’s plan to start implementing the use of B7 biodiesel in stages, starting next month, as this will boost the country’s usage of palm oil.
“We estimate that the rollout could raise the country’s palm oil demand by 263,000-390,000 tonnes per annum, or one to two per cent of the total palm oil production in 2013.
“As this equates to an additional monthly crude palm oil (CPO) demand of only 22,000-33,000 tonnes, we keep our average CPO price forecast at RM2,390 and RM2,460 per tonne for this year and 2015, respectively.
“We also maintain our ‘neutral’ rating on the sector. Our key picks in the sector are First Resources, Astra Agro and SIMP,” CIMB Research said in a note yesterday.
Malaysia plans to implement a B7 (a blend of seven per cent palm biodiesel with 93 per cent petroleum diesel) biodiesel programme for the subsidised sector in Peninsular Malaysia from next month, and will expand this to Sarawak, Sabah and Labuan by December.
The B7 biodiesel programme will help boost the domestic use of biodiesel to 575,000 tonnes per annum, according to the Plantation Industries and Commodities Minister Datuk Douglas Uggah Embas.
It would contribute towards savings of 667.6 million litres of diesel a year. Malaysia is also studying the possibility of again raising the mandate for palm oil in diesel to 10 per cent, although no timeline for implementation has been provided.
The move will put Malaysia at par with other developed nations in the use of renewable energy sources. For instance, countries in the Euro-
pean Union have been implementing B7 since 2009, while Thailand has implemented B7 since January this year.
CIMB Research said it is not surprised by the news as the government has been alluding to such plans since March.
The earlier plan was to implement B7 in January next year. This appears to have been brought forward, possibly to help reduce palm oil stockpiles in the country and boost CPO prices.
The estimate by the ministry that B7 would raise domestic biodiesel usage in the country to 575,000 tonnes is slightly higher than CIMB’s earlier estimate of 448,000 tonnes (for the subsidised diesel market).
“We view this as the second policy move to support CPO prices. Malaysia has earlier cut export taxes for CPO to zero,” the research house said.