Malaysia's biodiesel plants face the axe

11 May 2007 11:36  [Source: ICIS news]

SINGAPORE (ICIS news)--Only five biodiesel plants are currently operating in Malaysia with scores of others facing the axe unless they start up within the next two years, said a source at the Malaysian Palm Oil Board (MPOB) on Friday.

 

Prices for palm oil, the main feedstock for biodiesel, have risen to an eight-year high, squeezing the profitability of producers and forcing them to either delay commercial operation or close plants until raw material prices drop.

 

"This [feedstock cost] has created a wait-and-see approach among producers," said the source, on the sidelines of the International Methanol Producers and Consumers Association Asian Methanol (IMPCA) conference in Singapore.

 

"The government is monitoring companies closely and if nothing is done [to start operations] their licences will be revoked," the source confirmed.

 

Parliament is currently discussing the introduction of a Biofuel Industrial Act, which late this year or early 2007 could empower The Plantation Industries and Commodities Ministry to withdraw licences issued to biodiesel operators companies.

 

The Malaysian Industrial Development Authority (MIDA) has issued more than 90 biodiesel producer licences since 2006.

 

There is currently a freeze on issuing new licences because of a surge in interest in the alternative fuels industry and pressure from environmentalists concerned about crop for palm oil replacing the rain forests.

 

Prices for Malaysian crude palm oil (CPO) front month futures rose to ringitt (M$)2,390/tonne ($701m) FOB (free on board) Malaysia as demand surged ahead of supply, market sources said on Tuesday.

 

Peak season demands from the food and fuel sector and high soybean oil prices in the US have combined to push palm oil prices higher.

 

Biodiesel prices are around $720-730/tonne FOB SE (southeast) Asia and producers are finding it difficult to cover production costs.

 

"There is certainly less than 10 biodiesel plants in production," said Muhtar Hashim, managing director of Ancom Kimia, a subsidiary of Malaysia's chemical producer Ancom Group on the sidelines of the methanol conference.

 

"But for those plants running, they have tied up contracts with European and other overseas consumers," he said.

  

The biodiesel boom was expected to dent methanol's hopes of becoming an alternative fuel or an additive to gasoline.

 

But producers in southeast Asia hope methanol has been given a respite."The impact on methanol demand is not expected to be as high as originally anticipated," said Hashim.

 

"We may see a lower percentage of biodiesel projects actually breaking through by the end of the decade," he added.

 

($1=M$3.40)

By: Matt Kovac
+65 6780 4359

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