- The developments in the sector this week were in respect of biodiesel and China’s palm oil inventory figures.

- Last week, Bloomberg reported that the European Parliament has voted to curb the transport industry’s consumption of biofuels.

- The European Union (EU) has fixed a 6% limit on the use of crop-based biofuels in ground transport as opposed to the previous requirement that at least 10% of energy for road and rail transport should come from renewable sources by 2020.

- This is not a positive development as it may reduce EU’s imports of biodiesel. Based on the latest prices, palm-based methyl ester is currently trading at about Euro845-865/tonne.

- According to a USDA (US Department of Agriculture) report, which was published before the 6% cap by EU, biodiesel consumption in EU might inch up 1.1% from 11.87bil litres in 2013F to 12bil litres in 2014F. Imports of biodiesel are forecasted to rise by 5.9% from 1.7bil litres in 2013F to 1.8bil litres in 2014F.

- USDA estimated the refining capacity of biodiesel plants in EU at 24.47bil litres in 2011. Utilisation rate was about 45%.

- The negative development in EU is expected to be mitigated by positive developments in Indonesia.

- Recall that Indonesia had raised the blending rate for biodiesel to 10% from 7.5% this month. B10 will be imposed on industrial users this month while B20 will take effect for power plants starting from January 2014.

- In line with this development, Biofuels Digest reported that Pertamina will hold a tender this week to buy 6.6bil litres of palm-based biodiesel for its requirements in the coming two years. National production is roughly 5.6bil litres annually from 25 different producers.

- Finally, Bloomberg reported that China’s inventory at the ports rose by 40,000 tonnes to 1.07mil tonnes for the week ending 13 Sept. This was relatively unchanged from the level of 1.06mil tonnes for the week ending 19 August.

- We have a neutral stance on the plantation sector. Presently, Genting Plantations is a BUY for its special dividend payment, growing property contribution and robust growth in FFB production in Indonesia.

Source: AmeSecurities