According to a Business Times report last week, industry and government
officials are in the final stages of talks in implementing B7 biodiesel
as early as December. The blended biodiesel, which is a mixture of 7%
palm oil and 93% diesel, will eventually replace the current B5
biodiesel. Given the right subsidy and incentives, it is expected that
biodiesel players in Malaysia can take up 700,000mt of CPO from the palm
oil stocks for the B7 mandate, which will help restore CPO prices back
to stable levels. However, the inherent difficulties of running the
programme remains our major doubt as profitability is subject to
fluctuations in crude oil and palm oil prices. We maintain Neutral call
on the sector.
Will help reduce palm oil stockpile. Based on the previous assumptions on the B5 and B10 mandate, it is expected that the B7 mandate will take away 700,000mt palm oil from the current palm oil inventories of 1.7m mt, which will bode well for the recovery of palm oil prices. In addition, it also helps reduce dependency on China and India, which are the two largest vegetable oil importing countries, accounting for 32% of Malaysia’s palm oil exports YTD.
Need to address the viability and usage of B7. Currently, the usage of biodiesel is only limited to government-owned vehicles within the various ministries and for diesel engine vehicles used in the oil palm plantation estates. As the government wants to encourage the usage of biodiesel further, there is a need to receive the “green light” from engine manufacturers on the viability of B7. Apart from that, government also can consider exporting biodiesel to European countries as its Indonesian and Argentine counterparts are being slapped with anti-dumping duties on biodiesel exports to EU.
Uncertainty over the the long-term prospects. The introduction of B7 has triggered our concern whether government is still running the B10 biodiesel project as it has indicated in the beginning that it tends to roll out nationwide by middle of next year. As biodiesel business is only profit-making when crude oil and CPO prices are below USD100/barrel and RM2,250/mt respectively, the long-term prospects of biodiesel remain uncertain.
Source: PublicInvest Research - 28 Oct 2013
Will help reduce palm oil stockpile. Based on the previous assumptions on the B5 and B10 mandate, it is expected that the B7 mandate will take away 700,000mt palm oil from the current palm oil inventories of 1.7m mt, which will bode well for the recovery of palm oil prices. In addition, it also helps reduce dependency on China and India, which are the two largest vegetable oil importing countries, accounting for 32% of Malaysia’s palm oil exports YTD.
Need to address the viability and usage of B7. Currently, the usage of biodiesel is only limited to government-owned vehicles within the various ministries and for diesel engine vehicles used in the oil palm plantation estates. As the government wants to encourage the usage of biodiesel further, there is a need to receive the “green light” from engine manufacturers on the viability of B7. Apart from that, government also can consider exporting biodiesel to European countries as its Indonesian and Argentine counterparts are being slapped with anti-dumping duties on biodiesel exports to EU.
Uncertainty over the the long-term prospects. The introduction of B7 has triggered our concern whether government is still running the B10 biodiesel project as it has indicated in the beginning that it tends to roll out nationwide by middle of next year. As biodiesel business is only profit-making when crude oil and CPO prices are below USD100/barrel and RM2,250/mt respectively, the long-term prospects of biodiesel remain uncertain.
Source: PublicInvest Research - 28 Oct 2013
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