A jump in palm oil consumption for biodiesel in Indonesia, the world’s biggest supplier, will probably mean that shipments fail to increase this year for the first time since 2010 even as production climbs to a record.
Exports may total 21 million metric tons, similar to 2013, as consumption climbs as much as 38 percent to 11 million tons and production expands to 28 million tons to 31 million tons from 26.5 million tons, according to Fadhil Hasan, executive director of the Indonesian Palm Oil Association, a producer group. His estimate would make the country the largest palm consumer, according to U.S. Department of Agriculture data.
The world’s most-used edible oil had its biggest advance last month since October and climbed to the highest level since 2012 as dry weather threatened crops in Indonesia and Malaysia, which represent 86 percent of world supply, and governments of both countries required more palm to be used in diesel fuel.
“The orientation of palm oil was always for export,” Hasan said in an interview in Jakarta. “Now we see domestic consumption and biodiesel is the most significant factor if the government is really committed to the program.”
Futures rose as much as 2.1 percent to 2,860 ringgit ($872) a ton on the Bursa Malaysia Derivatives today, the highest price since September 2012, before closing at 2,806 ringgit. Prices advanced 9.4 percent last month as soybeans climbed 10 percent and corn added 6.8 percent.
As much as 3.4 million tons of palm will be used for biodiesel this year in Indonesia, Hasan said on Feb. 24, after Southeast Asia’s biggest economy increased the blending rate to reduce import costs and narrow the current-account deficit.
Indonesia boosted in September the amount of biodiesel blended with fuel to 10 percent from 7.5 percent and power plants had to blend 20 percent from January. PT Pertamina has already secured 2.4 million kiloliters of biodiesel, 45 percent of the 5.3 million kiloliters it’s seeking for this year and next, the state oil and gas company said Feb. 16. Pertamina will hold more auctions to buy the remainder.
Malaysia is extending its B5 biodiesel program in the country which will result in consumption of 500,000 tons of palm methyl ester annually, according to the government.
“The demand side of the equation has been overtaken by biodiesel,” Dorab Mistry, director of Godrej International Ltd., said by e-mail. “It remains to be seen how much of the Indonesian mandate is actually fulfilled.”
Source : Bloomberg Businessweek