Report Highlights:
Faced with sluggish domestic demand, and stiff competition from Indonesia in export markets, Malaysia’s biodiesel sector continues to struggle. Nonetheless, the government has pledged to continue supporting the sector, and seeks to complete implementation of a 5 percent blend, followed by a 10 percent blend in 2014. The dominant objective of the program continues to be to boost demand for crude palm oil.
I. Executive Summary:
Record year-end level palm oil stocks of 2.62 million tons in December 2012 prompted the Government of Malaysia (GOM) to accelerate implementation of the five percent palm methyl ester blend (B5) diesel marketing program, with the goal of achieving nationwide coverage by the end of 2013. In 2012, GOM provided RM300 million to assist with establishing blending and storage facilities in Peninsular Malaysia. B5 is now available in some outlets in central Malaysia, and according to the original plan, B5 was to be made available in each State by mid-2014. However, with the new goal, B5 is to be launched in outlets in the Southern Region of Johor in July 2013, followed by the Northern States of Perak, Kedah, Perlis, and Penang by October 2013, and then in Kelantan and Terengganu by December 2013. With B5 then fully available throughout Peninsular Malaysia, GOM’s goal is to extend it to East Malaysia by July 2014. Nonetheless, in those States where B5 is currently available, only a limited number of outlets carry it. For B5, currently the additional cost for blending biodiesel is about RM80 per ton or 0.80 cents per litre.
Once the B5 mandate is implemented nationwide in mid-2014, GOM reportedly will then focus on production and marketing of a 10 percent palm methyl ester blend (B10). GOM hopes that the higher incorporation rate of palm oil to produce biodiesel will act as another important source of demand and help to maintain lower palm oil stocks. To assist the B10 program, GOM will provide an annual subsidy of RM413.6 million to producers, at about RM3,000 per ton. It is still unclear whether GOM is prepared to increase the subsidy rate should palm oil prices increase. Furthermore, even with these incentives, interest in B10 biodiesel is still limited. Nonetheless, GOM expects that the eventual B10
production will significantly increase demand for the feedstock, crude palm oil, reaching over 500,000 tons annually
