KUALA LUMPUR (May 6): Demand and production of palm oil-based biodiesel is expected to remain under pressure at home and abroad owing to the COVID-19 pandemic and its wide disruption of economic activities and global trade.
S&P Global Platts Agriculture Analytics Business Analyst Loren Puette noted Malaysia’s implementation of a Movement Control Order (MCO) in the past seven weeks will likely lead to a decline in biodiesel production in the country – an effect likely to also unfold in Thailand which has also imposed a quarantine and social distancing measures.
On the other hand, Indonesia’s production of palm oil-derived biodiesel is expected to remain above 2019 levels for now, buoyed by the country’s B30 biodiesel programme. Puette said at the Asia Biofuel and Diesel Market - Impact of COVID-19 webinar today.
Malaysia’s biodiesel blending rate is expected to stagnate this year at 9.6%, before rising to 20% in 2024.
Consumption of biofuel this year is forecast at 15 million barrels a day (mbd), and reaching 35 mbd by 2024.
“However, [the rise in biofuel blending and consumption] depends out how this pandemic plays out on the economy,” said Puette.
Another issue is the Government’s postponement of the implementation of a B20 biodiesel mandate until further notice, which could extend beyond the third quarter of the year.
At the same time, biodiesel demand in the country is expected to fall in tandem with all other types of fuels, as economic activities grind to a halt because of lockdowns imposed by governments across the globe.
“Overall fuel demand to decline, while biodiesel consumption and blending rates are mixed depending on mandates,” he said.
A key determinant of palm oil-derived biofuels is the price of crude palm (CPO) which is affected by supply and demand.
Refinitiv Agriculture Senior Analyst Dr Tan Kian Pang pointed out that palm oil has been hit by a confluence of factors such as weak imports from key palm oil-consuming countries such as China, India and EU countries, and weak consumption due to the impact of COVID-19 on the hotel, restaurant and catering (HORECA) industries.
“Weak diesel usage and crude oil supply glut have resulted in crude oil prices falling more than 50%, hurting Indonesia’s B30 and Malaysia’s B20 mandates,” he remarked.
Tan highlighted that a prolonged lack of rain, haze, lower fertiliser usage, flooding and movement restrictions are also taking their toll on palm oil production in Malaysia and Indonesia.
Between October 2019 to March 2020 total production in Malaysia declined by 19% year-on-year from the same period a year prior. Indonesia’s decline was smaller at 4% y-o-y.
Tan expects the COVID-19 pandemic, crude oil supply glut and global economic downturn to continue to exert pressure on palm oil. These unfavourable conditions aside, he also pointed to trade tensions between the US and China, India’s palm oil import restrictions, the EU’s biodiesel import restrictions and 3-MCPD (3-monochloropropane diol) & GE (glycidyl esters) food safety regulations.
But there are some bright spots. Given palm oil stocks in key consuming countries are tight, restocking could potentially take place once lockdowns are lifted.
Additionally, dry weather conditions in Malaysia during 1Q2020 could have a delayed impact on fresh fruit bunch (FFB) production and oil yield. This could reduce palm oil production and supply in six months to a year, and potentially lead to higher CPO prices.
Tan also highlighted that the cost of fertilisers and logistics services would be lower due to the current weakness in crude oil prices, making it cheaper for palm oil companies to conduct crop fertilising activities and to transport their products.
https://www.theedgemarkets.com/article/palm-oilbased-biodiesel-face-pressure-home-and-abroad
Source: theedgemarkets.com