ANALYSIS - The Veggie Fuel Tank Ignites Palm Outlook
Date: 30-Sep-05
Country: MUMBAI
Author: Hari Ramachandran
With crude oil prices soaring, Asian palm oil and South American soyoil producers see huge opportunities as countries seek vegetable oils to produce environmentally friendly biofuels.
Analysts believe biodiesel usage has the potential to become the biggest component of growth in vegetable oils. It has already lifted once-depressed prices and forecasts point to a five to 10 percent increase for most oils in the new year.
"All over the world there is a switchover to vegetable oil for biodiesel, even for straight burning," Dorab Mistry, industry analyst and director of Godrej International Ltd, told Reuters.
A colleague of Mistry made the point in lighter vein at a conference in Kuala Lumpur.
"I will not hazard any range, for very soon I will have to change," Nadir Godrej, managing director of Godrej Industries Ltd, said referring to price forecasts for palm oil.
"Please do not think that I am a weasel. Just pray and say biodiesel," Malaysian news agency Bernama quoted him as telling the conference.
European governments are trying to promote the use of biofuel, notably biodiesel derived from vegetable oils and ethanol that can be produced from grains, sugar or biomass, to cut greenhouse gas emissions from fossil fuels.
"The total biodiesel capacity coming on stream in the United States alone by the end of October 2007 will require 1.6 million tonnes of soya oil," said Mistry.
Mistry told a weekend conference that rising biodiesel usage will mean demand for edible oils will outstrip production by at least 6 million tonnes a year.
Biodiesel output by 15 EU members rose to an estimated 1.85 million tonnes last year from 1.45 million in 2003 and 1.05 million tonnes in 2002, industry associations say.
To sell their oils, Malaysia and Indonesia have for decades looked at India, until recently the world's largest edible oil importer. But now the countries, which also must battle with South American soybean oil producers, are increasingly looking to the European Union.
Palm oil is one of the world's cheapest vegetable oils and the EU imports about 3.5 million tonnes of refined and crude palm oil every year, mainly Malaysia and Indonesia.
But the EU's total edible oil imports -- which includes soy oils -- are expected to jump 8 percent next year to 8.4 million tonnes, as estimated by Oil World.
Analysts believe palm oil producers could be the big winner since it is the cheapest of the oils and easiest to work with when transforming into fuels.
Malaysian officials said the combustion grade of palm diesel from the country will be on par with winter-grade methylester produced from rapeseed, the top source of biofuel in Europe.
"But what makes the potential even greater is that palm oil is at least $200 a tonne cheaper than rapeseed oil," said Yusof Basiron, head of the government-run Malaysian Palm Oil Board.
Listed Malaysian plantation companies that could benefit from higher sales of palm oil include IOI Corp Bhd , Kuala Lumpur Kepong Bhd and Golden Hope Plantations Bhd .
IOI and privately-held Kuok Oil & Grains, another Malaysian firm, have already started building refineries in Europe to process the additional palm oil expected to land in that market.
Western environmental groups have criticized the expansion of palm plantations, which they say drive out animals and jeopardize biodiversity of the jungle. Malaysia denies the charge, saying its entire palm industry is nature-friendly.
"Today, the same West requires palm oil to produce biodiesel, so environmental issues are taking a back seat," P.R. Thakore, a vice president with Pan-Century Edible Oils Sdn. Bhd. said.
Europe is short of diesel as it has underinvested in refinery production in recent decades while motorists are increasingly switching to the fuel instead of gasoline. The EU has set a non-binding target of 5.75 percent biofuel content by 2010.
Industry officials say biod