Biodiesel, Biofuels, Crude Palm Oil, Indonesia, Malaysia, Transportation

High CPO Prices Holding Back Malaysian Refineries

September, 19, 2007 (Reuters) – High palm oil prices and tight margins could delay start-up of new Malaysian biodiesel plants due this year unless petroleum prices stay at current record levels, a senior government official said on Wednesday. Four biodiesel plants, including Global Bio-diesel Sdn Bhd in Sabah, were expected to start up by the end of this year but are now hesitating, said Michael Dosim Lunjew, Secretary General of the ministry of plantation industries and commodities.

Plants would have to see if record crude oil prices this week of over $82 a barrel are here to stay, Lunjew said. “Even $80 is tough unless it brings (the biodiesel price) to higher levels.”

Lunjew was taking part in a forestry conference in Beijing.

“They need a margin, unless they are integrated which means they can take a loss, but most of the plants are independent.”

Crude palm oil futures in Kuala Lumpur hit a record high this year and are up by 28 percent compared with the end of last year, and by 80 percent since the end of 2005, squeezing margins for plants counting on lower raw materials costs.

“Of course while the initial projections were very optimistic, with the recent price increase in CPO I think a lot of them are waiting to see what the next price change is going to be like,” he told Reuters.

“If the price stays like this I think they will try to hold on for a while. The facilities are progressing as scheduled, except that the decision to operate them depends on the price of the CPO.”

Malaysia’s operating biodiesel plants have a total capacity of 450,000 tonnes. Global Bio-diesel, owned by South Korea’s ECO Solutions Co Ltd (052510.KS), had planned to start its 200,000 tonne per year plant this month or next, and expand to 500,000 tonnes in 2008.

High crude palm oil prices have encouraged Malaysian plantation owners to expand into Indonesia, since additional land is limited in Malaysia.

The limited land means Indonesia — which is converting clear-cut land into palm plantations — is likely to surpass Malaysia this year as the world’s top palm oil producer.

But Malaysia will remain the world’s largest exporter, Lunjew said, since Indonesia consumes more of the vegetable oil at home.

About half of Malaysia is covered with natural forest, Lunjew told the forestry conference in Beijing, and 44 percent is parks or national forest where the penalties for illegal logging have been stiffened.

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