Palm oil firms will benefit when mandatory use of B5 biodiesel starts

by **Cals** Wed 19 Mar 2014, 16:36

Business & Markets 2014

Written by Sulhi Azman of theedgemalaysia.com

Wednesday, 19 March 2014 10:15

KUALA LUMPUR: The mandatory use of palm oil-based B5 biodiesel is expected to boost net profit of plantation firms by up to 5% or RM10 million to RM20 million a year, said PublicInvest Research plantation analyst Chong Hoe Leong.

The government plans to enforce the mandatory use of B5, which is a blend of 5% palm oil biodiesel and 95% petroleum diesel, for all diesel vehicles nationwide beginning July 1.

However, Chong told The Edge Financial Daily yesterday that this impact on plantation firms’ net profit is “not significant”.

“I see players from the upstream plantation segment would most likely be affected positively,” he said.

Chong also sees the move towards enforcing the mandatory use of B5 as a way to stabilise prices of crude palm oil (CPO) and to improve domestic demand for the commodity, which in turn will help lower CPO inventory.

He is forecasting CPO price to move up to between RM2,800 and RM2,900 per tonne in the first half of this year, and self-correct to RM2,750 in the second half. The contract for delivery in June closed at RM2,736 per tonne on Bursa Malaysia Derivatives yesterday.

Chong is maintaining an “overweight” call on the plantation sector.

Yesterday, Plantation Industries and Commodities Minister Datuk Seri Douglas Uggah Embas was reported by Bernama as saying that the government will fully mandate the use of B5 nationwide on July 1.

Douglas said on that day, all 3,877 petrol stations in the country will be selling B5, adding that national palm oil biodiesel consumption is expected to rise to 500,000 tonnes a year.

The B5 programme, implemented in Putrajaya, Malacca, Negeri Sembilan, Kuala Lumpur and Selangor on June 1, 2011, was expanded to Johor on July 22 last year.

Annual consumption of palm oil biodiesel in the two regions’ 1,565 petrol kiosks is 150,000 tonnes.

“The programme was later extended to the Eastern Region comprising Pahang, Terengganu and Kelantan in February, raising annual consumption of palm oil biodiesel by 34,938 tonnes and reducing annual diesel consumption by 40.4 million litres,” Douglas was reported as saying.

Speaking to reporters at the launch of palm oil biodiesel in the Eastern and Northern Regions and in Peninsular Malaysia by Pahang Menteri Besar Datuk Seri Adnan Yaakob in Kuantan yesterday, he said all 789 petrol stations in the Northern Region covering Perak, Kedah, Perlis and Penang will implement the mandate this month.

“The final phase of the B5 programme will be implemented in Sabah, Sarawak and the Federal Territory of Labuan in July,” Douglas said.

He added that the government will mandate the use of B7 (a blend of 7% palm oil biodiesel and 93% petroleum diesel) by January 2015, and is getting feedback from Japan Automobile Manufacturers Association, Malaysian Automotive Association, vehicle manufacturers, Sirim Technical Committee and Malaysian Biodiesel Association.

This article first appeared in The Edge Financial Daily, on March 19, 2014.