By Aidila Razak
Setting up a biodiesel consortium could address the high stockpiles which are pushing down prices, observers say, but long term feasibility remains a question.
According to Alliance Research analyst Arhnue Tan, this is because cutting stockpiles will eventually raise prices and this could then put a biodiesel venture in jeopardy.
“Biodiesel is only viable when crude palm oil (CPO) prices are low, otherwise substantial subsidies are required. But at the current prices, subsidies won’t be needed for biodiesel,” she said.
She said that biodiesel has only worked out in places like the United States and the European Union due to strong government support.
“But even then there is an ongoing debate over whether the crops should be used for food rather than fuel,” she said.
Tan was commenting on the formation of Biodiesel Malaysia Sdn Bhd, a joint-venture between Malaysia’s palm oil giants Sime Darby and Felda Global Ventures Holdings.
The two companies will own 50 percent of the venture while the other half will be opened to other biodiesel players in the country.
The government has committed to subsidise Biodiesel Malaysia to offset CPO costs, and is expected to foot from RM80 million to RM1.1 billion depending on prevailing CPO prices.
This is part of the government’s plan to implement the use of B10 biodiesel (90 percent diesel and 10 percent palm oil) nationwide by mid-2014.
“The situation is quite fluid, the mechanics go beyond biodiesel. Other considerations include subsidies for petrol. It is difficult now to say if it will be successful.
“But this is proactive news coming from the players. They would really need to look at all the other factors if they want this to succeed. They would need to pull all stakeholders together,” Tan said.
Will the government continue to support biodiesel?
Agreeing with her, an analyst with another research house who declined to be identified said that at present, the differential between diesel and biodiesel is wide enough to make it economically viable.
“The spread between diesel and biodiesel is about US$130 per metric tonne. This is a big discount in favour of biodiesel,” the analyst said.
However, she added that historically, biodiesel ventures by oil palm companies turned pear-shaped when prices go higher than RM2,500 per metric tonne.
Industry outlook of CPO for 2013 range from as low as RM1,800 per metric tonne to RM3,200 per metric tonne, depending on weather and stock levels.
“We take this news as positive for the industry, but biodiesel is a volatile business,” she said.
However, she is optimistic that the government commitment to biodiesel will stand up, particularly at a time when the palm oil industry is “in the doldrums”.
Tan Tai Leong, a plantation consultant with 36 years experience in the industry, however, believes that the biodiesel policy must be matched with a revision of tax and incentive structures.
He said that taxes on the palm oil industry can be as high as 40 percent and industry can be supported through reduction of windfall tax and providing incentives like free amenities and medical for plantation workers.
He added that recent revision in taxes has already had its impact on stockpiles.
“It is only when the government takes proactive action, such as from January with zero (export) tax for CPO (set at around) RM2200 per metric tonne with monthly monitoring that the stockpiles reduced.
“At the same time the expedition of policy of B10 fuel from previous B5 for government vehicles also served to mitigate (the rising stockpile) and reduce supply,” he said.
He added that while biodiesel has environmental benefits, in the long run the small domestic market may undermine biodiesel viability. This is especially compared to the other oil palm biodiesel producer Indonesia.
“So we will also need to export the bio-diesel, but this will depend on the price compared to the other sources of bio-diesel,” he said.
This includes sugar cane, rapeseed and soybean, mostly planted in the Americas and Europe, where biodiesel is heavily subsidised..
You must be logged in to post a comment.