B10 mandate lifts CPO price

PETALING JAYA: The increased mandated usage of palm oil as fuel and rising demand from key buyers are helping to pare down record-high inventory and boost the commodity price to its highest level since July last year.

The third-month crude palm oil (CPO) futures contract on Bursa Derivatives, the global benchmark, is 17% higher from its November low. At RM2,306 a tonne on Monday, the market has good reason to be bullish on palm oil.

Malaysian Automotive Association president Datuk Aishah Ahmad confirmed that more than 600 stations nationwide are already offering the B10 biodiesel fuel since Feb 1.

However, vehicles using Euro 5 diesel will be exempted.

The B10 programme, according to a recent report by CIMB Research, is expected to increase Malaysia’s demand for biodiesel to around 760,505 tonnes in 2019 compared with 286,900 tonnes last year.

The firm expects this to reduce CPO stocks in the country “to a more reasonable level.”

CPO stock in Malaysia climbed to a record 3.22 million in December, but is expected to reduce 5% month-on-month (m-o-m) to 3.04 million tonnes as at Jan 31.

The official figures will be released by the Malaysian Palm Oil Board next week.

A fall in palm oil inventories in January 2019 would represent the first monthly decline after seven consecutive months of increasing palm oil stocks.

Meanwhile, India looks likely to buy more palm oil this year.

A Bloomberg report said the Solvent Extractors’ Association of India has projected that the country might import more than 10 million tonnes of palm oil in the fiscal year ending Oct 31, 2019.

This is higher compared to the 9.2 million tonnes purchased a year earlier.

“The key factors to watch in February are the progress of the newly imposed B10 biodiesel mandate in Malaysia and palm oil exports to India following the cut in import duties,” CIMB Research said.

The firm estimates that Malaysian palm oil exports rose 12.9% to 1.56 million tonnes in January, based on estimates from cargo surveyors SGS, ITS and Amspec Malaysia.

“The better-than-expected recovery in exports was due to stronger demand from European Union (EU) countries,” it said.

According to SGS estimates, the EU registered a 63% m-o-m rise in palm oil imports to 405,867 tonnes.

However, exports to China and India fell by 17.9% and 8.5% m-o-m, respectively, as traders may have stocked up earlier and in view of rising palm product prices.

The stronger outlook for exports comes at a time when production from local estates would normally drop.

Findings from a survey of 19 plantation areas by the CIMB Futures team revealed that Malaysian CPO output probably fell 8.3% in January to 1.66 million tonnes.

“The first quarter is typically the lowest production quarter for palm oil,” it said.

While the palm oil market is expected to see a better start in 2019, a key risk facing the palm oil producers is the anti-palm oil ban in the EU.

The EU has proposed a ban on the use of palm oil-based biofuel within the eurozone.

Norway has approved a ban on biofuels containing palm oil from 2020, while France has announced plans to curb palm oil imports and exclude it from biodiesel feedstock.

CIMB said the plan by the EU to ban palm-based biodiesel could reduce palm oil usage in the EU by up to 2.45 million tonnes.