Biofuels Annual 2012

An Expert's View about Crops and Support Services in Malaysia

Posted on: 15 Aug 2012

High feedstock prices, little domestic demand, and stiff competition from Indonesian supplies in export markets have stymied development of Malaysia’s bio-diesel industry.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 8/3/2012 GAIN Report Number: MY2006 Malaysia Biofuels Annual 2012 Approved By: Chris P. Rittgers Prepared By: Abdul Ghani Wahab Report Highlights: High feedstock prices, little domestic demand, subsidized alternative petroleum based products, and stiff competition from Indonesian supplies in export markets have stymied development of Malaysia’s bio- diesel industry. A majority of the plants are idle. The Government of Malaysia has started to implement a B5 mandate (a blend of 5 percent palm methyl esters in diesel), but domestic consumption is expected to remain stagnant. Post: Kuala Lumpur Table of Contents Executive Summary ...................................................................................................................... 3 BIO-FUEL POLICY ..................................................................................................................... 4 Policies supporting production and use of biofuels ............................................................... 4 BIO-FUEL MARKET SITUATION ........................................................................................... 5 Potential consumption of biofuel ............................................................................................. 5 Biofuel Production .................................................................................................................... 6 Import Regime for Biofuels...................................................................................................... 7 BIOFUEL STATISTICS .............................................................................................................. 7 GAIN Report MY2006 Page 2 Executive Summary Executive Summary: Despite very optimistic expectations just a few years ago, for a number of reasons, Malaysia’s biodiesel sector is not yet economically viable. Most domestic biodiesel plants are idle. Strong CPO prices, in the face of subsidized petroleum-based fuels, have hindered development of the biodiesel sector. Palm oil producers, who also tend to be the biodiesel manufacturers, obtain greater returns selling CPO rather than further refining the oil for biodiesel. Since starting in 2009, implementation of the B5 mandate (a blend of 5 percent of palm methyl esters in diesel) has been slow, with product currently available only in 3 states, involving some 1,150 petrol stations, and potential consumption of 155,440 tons or 178 million liters biodiesel per year. Upon full implementation of the mandate, B5 use is supposed to reach 570,000 tons of CPO to produce 500,000 ton of biodiesel. That quantity would still represent only about 3 percent of current annual CPO production. Few retail petrol stations in Kuala Lumpur and Selangor carry B5 blended diesel, and the product is in fact difficult to find, reflecting the slow implementation of the mandate. In 2011, biodiesel exports declined to 49,999 tons, compared to 89,609 tons the previous year. Major export markets were EU, Taiwan and South Korea. With domestic production expected to continue to be low in the near future, exports should continue falling. Exchange Rate: US$1=RM3.159 (Jul 28, 2012) GAIN Report MY2006 Page 3 Author Defined: BIO-FUEL POLICY Policies supporting production and use of biofuels With the palm oil prices staying above RM3,000MT ($940/MT), and reaching as high as high RM3,811/MT ($1,206/MT), and with highly subsidized petroleum based fuel alternatives, returns from CPO sales have been better than biodiesel processing margins. Nonetheless, the Government of Malaysia (GOM) hopes that eventually 500,000 tons of palm oil will be used when full implementation of the B5 mandate is attained. However, the sector is still far from reaching that level of palm oil use and biodiesel production. Few petrol retail stations currently offer B5 diesel. Implementation of the B5 mandate in central region States (Putrajaya, Malacca, Negeri Sembilan, Kuala Lumpur and Selangor) has occurred in stages, with Putrajaya on 1st June 2011, Malacca on 1st July 2011, Negeri Sembilan on 1st August 2011, Kuala Lumpur on 6th October 2011 and Selangor on 1st November 2011. This initial targeted area involved 1,150 petrol retail stations with potential consumption of 155,440 ton or 178 million liters a year of biodiesel. GOM hopes to achieve nationwide implementation of the B5 mandate in 2013, with a goal of using 570,000 tons of CPO to produce 500,000 ton of biodiesel. However, this goal is unlikely to be reached. With subsidized domestic fuel prices, petroleum-based diesel and B5 diesel prices are the same, so consumers have little incentive to switch to B5. In addition, it costs GOM 1-2 cents per liter more to offer consumers palm based diesel compared to petroleum diesel. This translates to an additional subsidy of RM124.6 million ($39.4 million) per year. Furthermore, the biodiesel is not easy for the general consumer to obtain, as few petrol stations in Kuala Lumpur and Selangor even offer B5 diesel. And most importantly, the continued relative high price of the B5 feedstock, Palm Methyl Ester (PME), continues to hamper biodiesel production. Another issue that is negatively affecting biodiesel production is the export duty differential relative to that of Indonesia, which favors Indonesia’s biodiesel exports. Indonesia’s duty for biodiesel is 2 percent compared to that of CPO at 16.5 percent; whereas, Malaysia has an equal export duty of 30 percent for both biodiesel and CPO. Table 1: Retail Price of Motor Fuels in Malaysia (per liter) GAIN Report MY2006 Page 4 Without Subsidies or Subsidized Retail Price Sales Tax Exemptions Gasoline* US$0.63 (RM1.90) US$1.09 (RM3.28) Petroleum Diesel US$0.60 (RM1.80) US$1.02 (RM3.08) *RON95 US$1=RM3.159 (Jul 03, 2012) BIO-FUEL MARKET SITUATION Potential consumption of biofuel Diesel vehicle ownership in Malaysia is relatively small compared to petrol vehicles. The numbers of new vehicles registered through December 2011 are shown below, and of these, diesel vehicles (mostly goods vehicles) accounted for only 5 percent of new registrations. Table 2: #Number of New Motor Vehicles Registered until December 2011 Buses Motorcycles Cars Taxis Goods Vehicles Others Total Hire & Drive Cars 9,985,308 9,721,447 180,998 997,649 545,867 21,401,269 46.66% 45.42% 0.84% 4.66% 2.55% 100% Source: Malaysia Road Transport Department The Malaysian Automotive Association (MAA) forecasts total industry volume of motor vehicles to show 2 percent growth in 2012 following a slight decline in sales in 2011. Table 3 forecasts a steady growth till 2015. GAIN Report MY2006 Page 5 Table 3: Malaysian Automotive Association (MAA) Forecast of Vehicle Sales 2011 2012* 2013* 2014* 2015* 2016* Passenger vehicles 535,113 547,000 555,900 565,550 575,800 587,000 Commercial vehicles 65,010 68,000 71,400 74,900 78,700 82,600 Total industry volume 600,123 615,000 627,300 640,450 654,500 669,600 Growth -0.8% 2.3% 2.0% 2.1% 2.2% 2.3% Source: MAA *forecast With Euro 4 emission compliant vehicles set to be introduced in 2014, demand for diesel vehicles in Malaysia may increase as more car manufacturers will introduce new fuel efficient high performance diesel vehicles. However, with limited choice of diesel vehicle models in the market, coupled with an unfavorable road tax for diesel vehicles, demand for B5 diesel will remain relatively low and is not expected to grow. Table 4: Road Tax in Peninsula Malaysia 2012 Engine Capacity (c.c.) Petrol Engine Diesel Engine 1000 and below US$6.33 US$6.33 1001-1200 US$17.41 US$34.82 1201-1400 US$22.16 US$44.32 1401-1600 US$28.49 US$56.98 1601-1800 US$63.44-US$88.64 US$126.88-US$177.27 1801-2000 US$88.79-US$120.29 US$177.62-US$246.91 2001-2500 US$120.61-US$278.57 US$247.61-US$595.13 2501-3000 US$279.36-US$674.26 US$597.02-US$1,544.79 3001-5000 US$675.69-US$3,523.27 US$1,548.21-US$8,382.40 US$1=RM3.159 (Jul 03, 2012) Biofuel Production GAIN Report MY2006 Page 6 Ethanol production Ethanol production is commercially insignificant in Malaysia. However, there is an opportunity for ethanol production from oil palm biomass, but this process is not yet economically viable. In May 2011, GOM established MyBiomass Sdn Bhd, a subsidiary company of Malaysian Industry- Government Group for High Technology (MIGHT), which is part of the Ministry of Science, Technology and Innovation (MOSTI). MyBiomass set up of a joint venture between Felda Plantation Bhd and Sime Darby Bhd, Malaysia’s largest two plantation companies. The joint venture plans to build a bio-refinery plant that converts oil palm biomass (trunks, empty fruit brunches and fronds) into isobutanol, butanediol and ethanol. However, like biodiesel, ethanol production would face competition from subsidized gasoline prices, so a commercially viable ethanol sector is unlikely to develop either. Biodiesel production in the biofuel sector At the end of 2011, there were more than 20 biodiesel plants, with a total production capacity of 2.62 million ton per year. Out of the 20 plants, only 2 plants are producing, and well below capacity. The rest are either-non operational or producing other bio-chemical products. With the high cost of feedstock, stiff competition from Indonesia for export markets, and low domestic demand, biodiesel producers will continue to face a difficult environment. When the price of palm oil went above RM2,800/MT ($886/MT), GOM started to look at alternative crops such as Jatropha. Even though the GOM provided some incentives for the production of Jatropha, commercial Jatropha production for biodiesel is still not viable. Import Regime for Biofuels GOM applies no import tariff on biofuels, no import tariff on crude palm oil, but a 5 percent duty is levied on processed palm oil. Similarly, no duties are applied on two common biofuel feedstocks: rapeseed oil and sunflower oil. There is, however, a 5 percent tariff on soybean oil. BIOFUEL STATISTICS GAIN Report MY2006 Page 7 Revisions to the PSD Table can be found below. The BTN Trade code 382490900 (other chemical Products) contains other product besides palm oil diesel. Biodiesel production/consumption/trade (1,000 M Ton) 2008 2009 2010 2011 2012 Biodiesel Beginning stocks 7 20 15 4 3 Production 1/ 195 222 80 13 15 Imports 0 0 0 0 0 Total supply 202 242 95 17 18 Exports 182 227 90 12 10 Consumption 0 0 1 2 4 Ending stocks 20 15 4 3 4 1/ One ton of Palm Oil has a 94% yield in term of methyl ester output. Table 5: BIODIESEL PLANTS REGISTRATED IN MALAYSIA 1/ GAIN Report MY2006 Page 8 1 AJ Oleo Industries Sdn. Bhd. Segamat, Johor 2 AM Biofuel Sdn. Bhd. Pasir Gudang, Johor 3 Carotino Sdn.Bhd. Pasir Gudang, Johor 4 YPJ Palm International Sdn. Bhd. Pasir Gudang, Johor 5 Malaysia Vegetable Oil Refinery Sdn. Bhd. Pasir Gudang, Johor 6 Nexsol (Malaysia) Sdn. Bhd. Pasir Gudang, Johor 7 PGEO Bioproducts Sdn. Bhd. Pasir Gudang, Johor 8 Vance Bioenergy Sdn. Bhd. Pasir Gudang, Johor 9 Mission Biofuels Sdn. Bhd. Kuantan, Pahang 10 Mission Biotechnologies Sdn. Bhd. Kuantan, Pahang 11 Plant Biofuels Corporation Sdn. Bhd. Kuantan, Pahang 12 Carotech Berhad (Chemor Plant) Chemor, Perak 13 Carotech Berhad (Lumut Plant) Setiawan, Perak 14 Lereno Sdn. Bhd. Setiawan, Perak 15 KL-Kepong Oleomas Sdn. Bhd. Port Klang, Selangor 16 Man Jang Bio Sdn. Bhd. Port Klang, Selangor 17 Intrack Technology (M) Sdn. Bhd. Rawang, Selangor 18 Sime Darby Biodiesel Sdn. Bhd.-Carey Island Pulau Carey, Selangor 19 Sime Darby Biodiesel Sdn. Bhd.-Panglima Garang Teluk Panglima Garang, Selangor 20 FIMA Biodiesel Sdn. Bhd. (Titian Asli S/B) Port Klang, Selangor 21 Weschem Technologies Sdn. Bhd. Batang Kali, Selangor 22 KLK Bioenergy Sdn. Bhd. (Zoop Sdn. Bhd.) Shah Alam, Selangor 23 Future Prelude Sdn. Bhd. Port Klang, Selangor 24 Innovans Bio Fuel Sdn. Bhd. Port Klang, Selangor 25 Global Bio-Diesel Sdn. Bhd. Lahad Datu, Sabah 26 Green Edible Oil Sdn. Bhd. (Green Biofuels) Sandakan, Sabah 27 SPC Bio-diesel Sdn. Bhd. Lahad Datu, Sabah 28 Platinum Biofuels Sdn. Bhd. (Ganz) Seremban, Negeri Sembilan 29 Senari Biofuels Sdn. Bhd. (Global Bonanza) Kuching, Sarawak Sources: MPOB: BIODIESEL PLANT IN OPERATION IN MALAYSIA Table 5 shows the biodiesel plants currently registered in Malaysia. However, few are operating. Export Trade Matrix COUNTRY 2010 GAIN Report MY2006 Page 9 Quantity (Tons) Indonesia 45,072 European Union 40,660 U.S.A. 3,482 South Korea 180 Taiwan 159 India 47 Japan 7 Singapore 2 TOTAL 89,609 2011 Quantity COUNTRY (Tons) European Union 38,811 Taiwan 9,223 South Korea 1,537 Switzerland 221 Singapore ** 124 Australia 41 India 40 Japan 3 TOTAL 49,999 ** Mainly for re-exports Sources: MPOB GAIN Report MY2006 Page 10
Posted: 15 August 2012

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