Neutral view on delay in B10 biodiesel programme

PETALING JAYA: MIDF Research is neutral on the delay in the implementation of B10 biodiesel scheme as it is not expected to significantly affect Malaysia’s palm oil inventory level, which already at its five-year low of 1.65 million tonnes as at end-May 2016.
On Monday, the Ministry of Plantation Industries and Commodities (MPIC) said it is in consultation with automotive companies on the phased implementation of the B10 biodiesel programme for the transport sector starting next month.
Meanwhile, according to Reuters, the government is in talks with oil companies for the delay in implementation, whereby the rationale is believed for oil companies to reset their blending ratios and procure palm methyl ester.
In the long run, MIDF Research believes that the B10 implementation will be made as higher biodiesel consumption locally should reduce the inventory of palm oil in Malaysia.
It also expects the biodiesel programme to keep the total inventory at the manageable level of below 2.5 million tonnes especially during the peak production months between September and November.
MIDF Research is of the view that the increase in local palm oil consumption in Malaysia for May is likely to be caused by higher biodiesel consumption. Local palm oil consumption increased 3.4% m-o-m and 8.9% y-o-y to 260,522 tonnes in May.
The research house believes that CPO is currently undervalued as its discount against soybean oil has widened to US$110 (RM447) tonnes despite the tight inventory at a five-year low.
“From the recent low discount of US$54 per tonne, CPO and soybean oil discount has doubled to US$110 per tonne currently,” it said.
MIDF Research is maintaining a positive view on the plantation sector, with a near-term target range of RM2,500 to RM2,800 per tonne.