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News Admin
 
Date
 01/10/2020
News Provider
 Norsaidatul Najwa Mohd Shaharmi
News Source
 The Star Online
Headline
 Diesel slump smashes palm oil’s biofuel goals


The Star Online (30/09/2020) - KUALA LUMPUR: Palm oil is now facing an almost insurmountable challenge in its bid to replace fossil fuel as an energy source.


Gasoil, also known as diesel, has slumped more than 45% this year, making its price gap with palm oil the widest since 2011.



That has not only wiped out discretionary blending, but also threatens huge biodiesel mandates in Indonesia and Malaysia, besides risking the derailing of palm’s rally.

Palm oil is about US$350 a tonne more expensive than gasoil, double the average in the past year. On Sept 18, the premium surged past US$400 for the first time in more than nine years.

The last time the spread was that wide, palm was near US$958 (RM4,000) a tonne as La Nina flooded plantations in South-East Asia.



“The weakness of gasoil prices in relation to crude oil is a sign of the troubles of the petroleum refining industry, ” said James Fry, chairman of LMC International. “A large palm oil-gas oil spread means that palm biodiesel has become a very expensive source of diesel fuel.”



This puts Indonesia’s biofuel fund under pressure, Fry said, although President JokoWidodo seems committed to maintaining the B30 mandate, which entails a 30% blend of palm-biofuel into fossil fuel.



Palm-biofuels, seen in Indonesia as a way to slash hefty diesel import bills, need to be attractively priced to encourage consumption, and that often requires subsidies.



“Outside Indonesia, the large palm oil-gas oil spread is likely to lead to some backsliding on biodiesel mandates as governments balk at funding the subsidies on biodiesel, and hesitate about passing the high spread on to drivers, ” Fry, a veteran industry analyst, said by email from London.



Malaysia resumed its B20 mandate for the transport sector in Sarawak this month, after delays due to the Covid-19 outbreak, and plans to implement the higher blend in the rest of the country by June next year.



The government also wants to raise the mandate to B30 as early as 2025.



On palm prices, Fry said weather-related production woes in Indonesia may outweigh labour concerns in neighbour Malaysia over the next few months.



“Right now, Indonesia is worried about the after-effects of recent very heavy rains on the evacuation of bunches to mills and oil from mills to refiners, especially if heavy rains associated with La Nina materialise in the next few months.”



In terms of inventories, Fry expects them to rise because of the seasonal high-production cycle in the fourth quarter, and as import demand tails off when palm-biodiesel becomes less suitable in the European winter. That should narrow the price spread to fossil fuel. — Bloomberg



Read more at https://www.thestar.com.my/business/business-news/2020/09/30/diesel-slump-smashes-palm-oils-biofuel-goals




ECONOMICS & INDUSTRY DEVELOPMENT DIVISION
Malaysian Palm Oil Board ( MPOB ) Lot 6, SS6, Jalan Perbandaran, 47301 Kelana Jaya, Selangor Darul Ehsan, MALAYSIA.
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