Malaysia Delays Full Implementation of B5 Biodiesel Mandate

Aug 06, 2014 5:46 am ET

(Updates prices and adds comments in fifth paragraph.)

Aug. 6 (Bloomberg) -- Malaysia, the largest palm oil producer after Indonesia, delayed the nationwide implementation of its biodiesel mandate to the end of the year, said Douglas Uggah Embas, Plantation Industries and Commodities Minister.

The B5 program will be completed by December instead of an original target of July, doubling average monthly consumption, Uggah said in an e-mailed response to Bloomberg questions. The delay was because construction of 15 blending facilities in the states of Sabah and Sarawak and the federal territory of Labuan in East Malaysia were taking longer than expected, he said.

Palm, the world’s most consumed cooking oil, has declined 16 percent in 2014 and slumped to the lowest level in a year in Kuala Lumpur today as the U.S. government predicts record global inventories of soybeans, used to make an alternative oil. Prices have also been pressured by the failure of Indonesia and Malaysia to boost use in biofuels, according to Dorab Mistry, director at Godrej International Ltd., on June 26.

The government and the palm oil board are “monitoring the progress of the construction of the blending facilities and exploring ways to accelerate completion,” Uggah said. “Full implementation of the B5 program is expected to consume 500,000 tons of methyl ester annually.” The country is set to produce 19.5 million tons of palm this year, the government says.

Futures declined as much as 0.7 percent to 2,239 ringgit ($700) a ton today on the Bursa Malaysia Derivatives, the lowest level since Aug. 12. News of the delay added to the bearish outlook for palm oil, said Chandran Sinnasamy, Kuala Lumpur- based head of trading at LT International Futures Sdn.

Missed Expectations

B5, which involves blending 5 percent of palm methyl ester with 95 percent of diesel petroleum, was completed in March in Peninsular Malaysia, Uggah said. Monthly usage will average 41,667 tons upon full implementation compared with 20,833 tons now, Uggah said. This will increase to 58,333 tons with the start of the B7 program in the first quarter, he said.

The government and the palm oil board are in discussions with engine manufacturers and automobile associations to get warranties for B7, he said.

Indonesia in September last year also boosted the amount of biodiesel blended with fuel to 10 percent from 7.5 percent and power plants had to blend 20 percent from January.

The country’s use of palm biodiesel in the first five months was roughly the same as in the same period a year earlier and full-year consumption will not increase, Mistry said at a conference in Mumbai in June. Domestic consumption of biodiesel is not as good as expected, Fadhil Hasan, executive director of the Palm Oil Association, told reporters on July 21.

Indonesia and Malaysia produce 86 percent of world supply.