Malaysia - Indonesia Set Palm for Fuel, Market Soars
Date: 21-Jul-06
Country: MALAYSIA
Author: Naveen Thukral
"Both countries agreed to commit a targeted amount of six million tonnes of crude palm oil each annually as feedstock for the production of biofuels and biodiesel," the ministry said in a statement.
The announcement, which came on top of Malaysia's strong palm oil exports, helped the benchmark third-month October contract on the Bursa Malaysia Derivatives to close up 3.3 percent to 1,591 ringgit (US$432) a tonne.
The volumes more than doubled to 26,936 lots of 25 tonnes each from 12,887 lots traded on Wednesday. Other contracts were up between 29 and 54 ringgit.
The statement said the decision was part of an agreement signed between the two nations which together produce the bulk of the world's palm oil.
TOO HOT FOR FOOD, FUEL
Industry analysts said the move could further boost edible-oil prices, making it expensive for both food and energy users to buy vegetable oils.
"Palm oil is going to become expensive and out of reach for consumers in developing nations like India, China and Pakistan," said M. R. Chandran, an independent commodity consultant. "Palm oil will lose its attractiveness as a cheaper form of edible oil."
Traders said companies setting up biodiesel plants had worked out the cost of palm oil at 1,500 to 1,600 ringgit a tonne to be viable for making biofuel. "The whole economics of palm as raw material for biofuel will change," said an official at a leading trading company.
But some others said the announcement is aimed at lifting prices and encouraging plantation houses, who have assured supplies of crude palm oil, to produce biodiesel.
As countries from Europe to Asia seek ways to cut dependence on imported oil, curb greenhouse gas emissions and boost local agriculture, biofuel plants are sprouting at a dizzying pace.
Biofuels are plant-based fuels, such as ethanol made from sugar or grains, which can be added to gasoline and biodiesel derived from oilseeds or palm oil and added to diesel.
Such is the demand for palm oil-based biofuel that Malaysia has stopped licensing new producers while industry works out how to divide the raw material between the food and energy sectors.
Malaysia's edible-oil industry says the government had approved 32 manufacturing licences, with annual output capacity of around 3 million tonnes of biodiesel, from 87 applications.
Exports of Malaysian oil palm products for July 1-20 stood at 713,114 tonnes, up 8.4 percent from 658,072 tonnes shipped between June 1 and 20, cargo surveyor Societe General de Surveillance said.
Another cargo surveyor Intertek Testing Services said exports jumped 10.9 percent to 751,524 tonnes in the first 20 days of this month.
