OSK: IMPACT OF BIODIESEL MANDATE ON PALM OIL DEMAND NEGLIGIBLE

KUALA LUMPUR, March 26 (Bernama) -- The impact of Malaysia's biodiesel
mandate on palm oil demand for 2011 will be negligible as it will only be
introduced in stages within central Peninsular Malaysia, according to OSK
Research.

Assuming that central Peninsular Malaysia uses 50 per cent of the country's
total diesel consumption of 10 metric tonnes, maximum demand for palm oil in
biodiesel in 2011 will amount to just 146,000 tonnes if implemented all at one
go rather than in stages, it said in a research note today.

Hence, the impact to palm oil prices should be positive but likely to be
insignificant, the research firm said.

OSK Research said plantation stocks should benefit, less so from palm oil
prices impact but more so from the removal of risk relating to the bearing of
subsidies, which are now directed to petroleum companies.

The subsidies on biodiesel will be borne by petroleum companies but the
government will bear the RM43.1 million (US$12.67 million) cost of developing
six petroleum depots with blending facilities, it said.

"Companies in our coverage with biodiesel exposure in Malaysia are Sime
Darby with capacity of 90,000 tonnes per annum and Kulim which has effective
capacity of 100,000 tonnes per annum in Tanjong Langsat, in the southern state
of Johor," it added.

Kulim's biodiesel unit has been running at a loss due to the selling price
and low capacity utilisation, according to OSK Research.

While utilisation rates should improve with the biodiesel mandate which will
start in June 2011, it is highly uncertain if it will be good enough to turn
around loss-making biodiesel ventures, it said.

The pricing mechanism is still not known and the country's overall capacity
utilisation rate will remain relatively low at less than 50 per cent even upon
full implementation, assuming biodiesel produced for the export market remains
constant, it added.
-- BERNAMA


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