KUALA LUMPUR (March 31): A roll-out of the long-delayed B50 biodiesel mandate in Indonesia this year will be positive for palm oil prices and producers, analysts said.

The mandate will be positive for prices as it could potentially provide additional demand of up to four million tonnes of palm oil annually and tighten exportable supply, CIMB Securities said in a note. However, details and the scope of implementation plans remain unclear, the house flagged.

“The planned B50 roll-out is a structural positive for crude palm oil prices,” CIMB Securities said and raised its forecast to RM4,400 per tonne this year.

On March 30, President Prabowo Subianto said that Indonesia will proceed with its plan this year to introduce B50 biodiesel that requires a 50:50 mix of palm-based methyl ester and petroleum diesel.

The news sent prices of the edible oil used in everything from diesel to lipstick to its highest in 15 months. Palm oil prices have soared nearly 19% so far this year, tracking strong gains of crude oil following the outbreak of the Iran war that has disrupted flow of major commodities.

Higher prices are positive for pure upstream planters, although this may be partially offset by higher fuel and fertiliser costs, CIMB Securities said and kept its ‘neutral’ sector call.  

Apex Securities, meanwhile, upgraded the Malaysian plantation sector to ‘overweight’ after raising its palm oil average price projection to RM4,400 per tonne for this year, to also account for the protracted Middle East tensions and elevated energy prices.

Elevated prices of fertilisers could introduce output yield risk if Malaysian palm oil planters delay or trim usage, the research house cautioned.

Still, companies under coverage, including the world’s largest producer by acreage SD Guthrie Bhd (KL:SDG) and Kuala Lumpur Kepong Bhd (KL:KLK), have largely secured fertiliser supply near the start of the year, Apex Securities noted.

Source : The Edge Malaysia