Friday 20 July 2012

Plantation Sector - B5 to be rolled out nationwide by 2014 Overweight


- Recently, it was reported that the Malaysian government is proposing to extend the implementation of the B5 Fuel Usage Programme nationwide, including for unsubsidised sectors, by 2014. 

- Bernama cited Datuk Hamzah Zainuddin, Deputy Plantation Industries and Commodities Minister as saying that the government has implemented the programme in the Central Region covering Putrajaya, Malacca, Negeri Sembilan, Kuala Lumpur and Selangor since early-November last year.  

- According to Hamzah, about 100,000 tonnes of oil palm biodiesel produced under the B5 programme in the Central Region have helped increase prices by RM69/tonne for palm oil and RM15/tonne for FFB. 

- We are neutral on the impact of biodiesel. Although biodiesel would help decrease palm oil supply in the country, we reckon that the reduction would not be significant. 

- In addition, the nationwide roll-out would only be implemented in 2014. There is risk that the implementation might be delayed.   

- Assuming the nationwide roll-out of biodiesel absorbs about 300,000 tonnes of palm oil from the system, this would be roughly 1.6% of Malaysia’s estimated CPO production of 19mil tonnes in 2012F. 

- We believe that the cost of biodiesel production is being subsidised currently. However, the cost of the subsidy is not large. 

- We estimate the cost of producing B5 biodiesel at RM1.84/litre (based on CPO price of RM3,000/tonne) compared with the current price of diesel of RM1.80/litre at the kiosk.   

- Presently, Malaysia guzzles about 10mil tonnes of diesel every year. 

- As such, implementation of the B5 Programme should  theoretically result in biodiesel production of 500,000 tonnes annually. 

- However to be conservative, we believe that the actual production would come up to 300,000 tonnes every year if B5 were to be rolled-out nationwide.

- We remain positive on the plantation sector. We believe that CPO prices would be supported by a fall in soybean production in the US and favourable demand for palm oil.

Source: AmeSecurities 

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