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Surging crude palm oil prices: Malaysian biodiesel plans in jeopardy

KUALA LUMPUR: Surging crude palm oil prices have put a dent in Malaysian ventures to manufacture biodiesel, with licencees dragging their feet to set up factories, officials and a report said Tuesday.

Crude palm oil prices in recent weeks have hit levels well above 2,000 ringgit (584.45 dollars) per tonne amid increasing demand and supply shortages, compared to prices around 1,500 ringgit in mid-2006.

Malaysia has issued 90 licences to firms to manufacture palm oil-based biodiesel, but Plantation Industries and Commodities Ministry parliamentary secretary S Vijayaratnam said only six factories were running.

He said the companies had to buy crude palm oil at market prices, which was deterring licencees, the New Straits Times reported Tuesday.

“The high price of crude palm oil is why a biodiesel venture is not financially viable at the moment,” Vijayaratnam was quoted as telling parliament.

However, Au Leck Chai, a senior ministry official, dismissed concerns the prices would hurt Malaysia’s nascent biodiesel industry, saying the price rises would only see the departure of smaller firms.

“It will weed out the smaller players,” Au told AFP. “At the end of the day, only those big companies will be able to do it, those who are integrated and have their own supply of crude palm oil.”

Smaller companies who have to buy crude palm oil from other suppliers or from Indonesia would probably be forced to hand back their licences, Au said.

“They will not put their investment down unless they are sure it’s a good return for them. At the end of the day, you will find they let their licences lapse or they give it back to the government,” he said.

Au said prices were being pushed up by increasing demand for palm oil as an edible oil and as a base for biodiesel, while there is a supply shortage partly due to worse than expected floods earlier this year.

“There is also a downturn in palm oil production, while there is production of biodiesel going on in some other countries and some of them are using palm oil,” he said.

Demand is also growing amid supply shortages of soy and rapeseed, other edible oils, he said. afp

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