Price and market trends: Indonesia PME headed to the US as EU campls down on biodiesel imports

22 February 2013 10:26  [Source: ICB]

Country is set to ship more palm methyl ester to the US as the EU clamps down on biodiesel imports

Indonesia may opt to ship out more palm methyl ester (PME) cargoes to the US in the coming months, as Europe - the southeast Asian country's biggest market for the product - has effectively restricted imports of biodiesel, industry sources said.

The US will be needing more of the material this year following reinstatement of a government incentive that promotes the use of more environment-friendly fuel or "green" fuel, they said. PME is a type of biodiesel that is derived from crude palm oil (CPO).

In Europe, on the other hand, an ongoing investigation on imported biodiesel originating in Indonesia and Argentina are making buyers nervous over a possible retroactive implementation of antidumping duties (ADDs) once they are finalised this year.

Europe imported about a third of Indonesia's 3m tonnes of PME output in 2012, with no recorded shipments from southeast Asia to the US, industry sources said.

Strong buying indications from the US this year saw southeast Asia PME prices rising to $970-1,050/tonne (€718-777/tonne) FOB (free on board) SE Asia on 7 February, up from the low-$800/tonne FOB SE Asia levels in early January.

"There has been a lot of prompt demand that we cannot fulfil because of the long shipment times from Indonesia to the US," a major Indonesia biodiesel producer said.

In January 2013, the US Congress reinstated the tax credit of $1.00/gal for biodiesel, with retroactive implementation to cover the whole of last year - a positive development for Indonesian PME producers that are looking for an alternative market to Europe, industry sources said.

The policy change is expected to fuel US demand for biodiesel this year, they said.

The US biodiesel subsidy was withdrawn in 2012 by the Obama administration, which cited that it was costly to the government. This led to a sharp decline in green fuel production in the country.

If the tax incentive were in place last year, the US industry would have produced 300m gal more biodiesel, according to media reports citing a study by consulting firm Cardno Entrix.

Theoretically, with the incentive, blenders will be able to afford biodiesel at the price of heating oil plus $1.00/gal, as a maximum purchase price, according to a market observer. On 13 February, US March heating oil futures on the NYMEX were at $3.24/gal.

In EU countries, on the other hand, a mandatory registration of all diesel imports from Indonesia and Argentina took effect on 30 January 2013 and will remain in place for nine months, as their trading regulatory body - the European Commission (EC) - is collating fresh data to determine dumping claims by its regional players. The probe is expected to be completed in the third quarter of this year.

On concerns over a retroactive implementation of ADDs, EU countries have shied away from buying Indonesian PME since last year. The region's volume of PME imports from Indonesia had gone down by about 30% last year from around 1.4m tonnes in 2011, a major Indonesian producer said.

By: Heng Hui
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