Biodiesel demand needed to support CPO prices
KUALA LUMPUR: With the premium of crude palm oil (CPO) prices against Brent crude oil narrowing due to an influx in CPO stock, experts from the Malaysia Palm Oil Board (MPOB) organised Palm Oil Economic Review and Outlook Seminar 2018 believe that more biodiesel blending will be needed to support CPO prices in 2018.
In a sector update by Kenanga Investment Bank Bhd (Kenanga Research), it reported that Indonesian Pam Oil Association (GAPKI) director Dr Mohamad Fadhil Hasan had guided during the seminar that he believed in order to support CPO prices, enforcement of nonPublic Service Obligation (PSO) blending, higher mandatory blending volumes, and further promotion of China and India mandatory programs would be required.
“We agree that this year may see the resurgence of discretionary palm biodiesel blending but expect gas oil prices to continue to act as a floor to prevent significant price drops,” said Kenanga Research.
However, it noted that there has been some concern that CPO demand price maybe suffering some headwinds as several speakers during the seminar have brought up the recent EU parliament vote to ban palm biodiesel.
Should the EU ban palm biodiesel, it anticipated that palm oil demand from the EU would dampen severely as a high proportion of 40 to 50 per cent of palm oil exports to the EU are used for biofuel.
Kenanga Research reported that LMC International Ltd chairman, Dr James Fry, found the move puzzling and argued that palm produc- ers have been meeting the standards set by the EU for the import of palm biodiesel – giving no solid justification to its ban.
He detailed that using an alternative feedstock would be less sustainable as it would both increase edible oil prices and require higher deforestation to produce biodiesel feed stock from less land-efficient crops.
Kenanga Research believed that the strongly negative perceptions of palm oil in Europe would likely result in the laws being passed.
While this would ultimately dampened the near-term prospects of CPO demand from the EU, the situation might not be as dire as the research arm expected the overall demand of palm oil could eventually balance itself.
“Upon enactment of the law, we think that with the EU’s local rapeseed oil likely to replace palm biodiesel as the main feedstock. This would create a supply gap in edible oils for food consumption.
“This could be a potential market for palm oil, depending on the degree of consumer sentiment, and overall result in a shift in EU demand from biodiesel into food usage over the longer run,” said the research arm.
Kenanga Research has reiterated its ‘neutral’ stance on the plantation sector as it believed CPO prices would see mid-to-long term price weakness thanks to a weaker US dollar to ringgit posing risk to ringgit-based CPO prices, and an expected three per cent production rise in 2018 to 20.5 million metric tonnes (MT).