Author: PublicInvest | Publish date: Wed, 1 Jun 2016, 10:16 AM
Malaysian plantation industry has raised the biodiesel mandate for transport sector from B7 to B10 effective today. It will also introduce B7 biodiesel programme for the industrial sector. Both B10 and B7 programme will collectively use up 709,000 of CPO domestically while diesel demand will reduce by 820 litres and carbon dioxide by 2.16m a year. We laud the long-waiting move, which has been delayed for almost two years, which will help improve the domestic palm oil consumption. We remain positive on the CPO outlook with an average CPO price forecast of RM2,500/mt for 2016 and RM2,600/mt for 2017.
A small reduction but a good move. Government will increase the blending of palm methyl from 7% (B7) to 10% (B10) with 90% petroleum diesel for the transport sector while industrial sector will adopt a 7% mandate for palm methyl ester or B7. Both B10 and B7 programmes will collectively consume an annual CPO of 709,000 mt or 3.5% of annual CPO production, which is relatively small. Nevertheless, it is still a good move for the Malaysia as we are far lagging behind Indonesia, which has adopted B20 this year.
Benefitting those plantation players with biodiesel facilities. Both programmes not only help reduce the national palm oil inventory levels, it also benefits some plantation players, namely, FGV, Genting Plantations and Sime Darby, who have ventured into biodiesel production. Due to the weak crude oil prices, the demand for biodiesel has been lacklustre over the last couple of years. The new mandate will certainly give the local biodiesel demand a boost.
Encouraging May exports preview. For the month of May 2016, Malaysia’s CPO exports climbed 15% from a month earlier, according to the cargo surveyor Societe Generale de Surveillance. Inventories might inch further downwards from the April’s level of 1.8m mt. The lower palm oil inventory will provide support to the CPO prices, which have been hovering around RM2,500/mt-2,700/mt levels.
Uninspiring results in 1Q but improvement expected in 2Q. Out of the 7 stocks under our coverage (excluding TDM for the time being), only two plantation companies, (IOI Corp and Kuala Lumpur Kepong) were within expectation. The weaker-than-expected results were attributed to the sharp decline in FFB production, which was not sufficiently offset by higher CPO prices. However, we see a rebound in 2Q banking on favourable trend in FFB production and CPO prices.
Source: PublicInvest Research - 1 Jun 2016
A small reduction but a good move. Government will increase the blending of palm methyl from 7% (B7) to 10% (B10) with 90% petroleum diesel for the transport sector while industrial sector will adopt a 7% mandate for palm methyl ester or B7. Both B10 and B7 programmes will collectively consume an annual CPO of 709,000 mt or 3.5% of annual CPO production, which is relatively small. Nevertheless, it is still a good move for the Malaysia as we are far lagging behind Indonesia, which has adopted B20 this year.
Benefitting those plantation players with biodiesel facilities. Both programmes not only help reduce the national palm oil inventory levels, it also benefits some plantation players, namely, FGV, Genting Plantations and Sime Darby, who have ventured into biodiesel production. Due to the weak crude oil prices, the demand for biodiesel has been lacklustre over the last couple of years. The new mandate will certainly give the local biodiesel demand a boost.
Encouraging May exports preview. For the month of May 2016, Malaysia’s CPO exports climbed 15% from a month earlier, according to the cargo surveyor Societe Generale de Surveillance. Inventories might inch further downwards from the April’s level of 1.8m mt. The lower palm oil inventory will provide support to the CPO prices, which have been hovering around RM2,500/mt-2,700/mt levels.
Uninspiring results in 1Q but improvement expected in 2Q. Out of the 7 stocks under our coverage (excluding TDM for the time being), only two plantation companies, (IOI Corp and Kuala Lumpur Kepong) were within expectation. The weaker-than-expected results were attributed to the sharp decline in FFB production, which was not sufficiently offset by higher CPO prices. However, we see a rebound in 2Q banking on favourable trend in FFB production and CPO prices.
Source: PublicInvest Research - 1 Jun 2016
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