• According to Bloomberg, Malaysia is still in talks with stakeholders on the implementation of the B10 biodiesel programme. The government is hopeful of implementing B10 before 2H2019. B10 is expected to consume 512,000 tonnes of palm oil a year compared with 358,000 tonnes under B7.

• We are neutral on this development. Biodiesel’s estimated take-up of 512,000 tonnes of palm oil a year is only 2.5% of Malaysia’s estimated CPO production of 20.5mil tonnes in 2018E.

• The implementation of B10 has been delayed in Malaysia for a few years due to the issue of car engine warranties and cheaper fossil fuel. However, now that crude oil prices have risen while at the same time, CPO price is in the doldrums, biodiesel is looking attractive again.

• Plantation companies with biodiesel operations in Malaysia include Sime Darby Plantation, FGV Holdings and Genting Plantations (GenP). Sime Darby Plantation’s biodiesel manufacturing capacity is estimated at 60,000 tonnes per year while GenP’s manufacturing capacity is about 300,000 tonnes per year.

• In Indonesia, the government has mandated railways and electricity generators to use B20 from 1 September 2018 onwards. This would help the country achieve its original biodiesel consumption target of 3.2mil kilolitres (2.79mil tonnes) for 2018E.

• The Indonesia government has announced a biodiesel consumption target of 6mil to 6.2mil kilolitres (5.2mil to 5.4mil tonnes) for 2019F. However, we believe that this would be difficult to achieve without the implementation of the B30 biodiesel policy.

• B30 would not be able to be implemented immediately as vehicle tests take almost a year to complete. The biodiesel target of 5.2mil to 5.4mil tonnes would represent about 13.4% to 13.9%% of Indonesia’s estimated CPO output of 38.8mil tonnes in 2018E.

• Indonesia is promoting the use biodiesel aggressively as it hopes to save about Rp50 trillion (US$3.5bil) in crude oil imports. Currently, the transportation sector in Indonesia uses the B20 biodiesel.

• In conclusion, we believe that the implementation of the B30 biodiesel policy in Indonesia would help alleviate any rise in palm oil supply in the country. If B30 could be implemented quickly, this would provide a boost to CPO prices.

Source: AmInvest Research - 7 Aug 2018