The coming biodiesel boom in Malaysia and Indonesia 0 comments

(P.S: Sorry for any disturbances the advertisements above may have caused you)
I have written about the coming second Green Revolution in an earlier article and it may be worth looking at the manifestation of a growing focus on the alternative fuels sector in two countries in ASEAN -- Malaysia and Indonesia.

Biodiesel is obtained by mixing natural oils (eg. palm oil, jatropha oil) into normal gasoline, and given the incumbent plantations already in existence in Malaysia and Indonesia for the crops in question, it is no surprise that they are looking to cash in on a probable alternative energy boom. Note that even in Europe, hardly the most agricultural of regions, biodiesel production capacity has almost tripled since 2003.

Malaysia, in particular, as the top producer of palm oil in the world, are looking to tap the huge potential in the biodiesel market, particularly in meeting the demand in Europe and the United States. The Malaysian Industrial Development Authority has approved 20 biodiesel projects between Jan 05 to May 06, with total proposed investments of RM1.9bil.

Indonesia is targeting a crash program to build biodiesel plants with production targets equivalent to 3 percent of the country's 2005 total fuel consumption by 2010. Biodiesel is renewable and based on such crops as castor-oil plants, oil palm, cassava and sugarcane, which can all be grown in the country. Most importantly, biodiesel production is highly labor intensive. In short, biodiesel production plays to the country's incumbent strengths.

There is tremendous optimism surrounding the alternative energy aspirations of the two countries. The key beneficiary is the plantations sector, which is set to benefit from a likely permanent upward shift in CPO (crude palm oil) prices. In Malaysia, the plantation index has already outperformed the KLCI by 21% since January 2006. Plantation heavyweights IOI, KL Kepong, Golden Hope are trading at >20X forward FY06PE following a year-long re-rating of the long-term prospects of the plantation sector (statistics taken from a Malaysian site: Sahamas forum Plantation sector.

A key development was a mid-July 2006 announcement by the Malaysian and Indonesian governments that the two countries will set aside 40% (or 6 million tonnes) of their CPO output for biofuel production, which sent CPO futures trading to two-year highs in response.

Siginificant biodiesel capacity is expected to come onstream over 2007-08 and palm oil prices are likely to appreciate over that period. Traditional users of palm oil will be affected -- the food and oleochemicals industries. A May 06 CLSA report predicted that "There is a good chance the edible oil market is at the cusp of a sea change in demand structure and will soon be staring straight into the headlights of a significant inventory destabilisation." That is the extent to which the emergence of a substantial new demand driver in biofuels could cannibalise on incumbent palm oil applications. There is at least one edible oils-linked company traded on the SGX --- clue: it started trading recently.

Below is a list of biodiesel plants being built in the region(taken from forum), for reference.

Soon to Start Production Biodiesel Plant

Annual Production (Tonnes),Material,Operational (Year)

Malaysia
Biotech International,"300,000",Palm Oil,2008
Carotech,"110,000",Palm Oil,2007
Carotino,"60,000",Palm Oil,2007
Golden Hope Plantations,"300,000",Palm Oil,2007
IOI Corporation,"150,000",Palm Oil,2007
Kulim,"200,000",Palm Oil,2007
Kumpulan FIMA,"60,000",Palm Oil,2007
IJM Plantations,"90,000",Palm Oil,2007
POIC (Palm Oil Industrial Cluster) Sabah Sdn Bhd,"300,000",Palm Oil,2007
Mission Biofuels,"100,000",Palm Oil,2007
Peter Cremer GmBH,"120,000",Palm Oil,2007
TSH Resources Bhd,"100,000",Palm Oil,2007
FELDA Group,"150,000 ~ 300,000",Palm Oil,2007
FELCRA,"50,000",Palm Oil,Unknown
Boustead Holdings Bhd,"16,000",Palm Oil,2007
Lereno Sdn Bhd,"60,000",Palm Oil,2007

Singapore
Peter Cremer,"200,000",Palm Oil,2007
Wilmar Group,"150,000",Palm Oil,2006

Thailand
Pamola Ltd,"72,000",Palm Oil,2006

Indonesia
3 BioEthanol,"150,000",Cane,Unknown
8 Biodiesel Plant,"400,000",Palm Oil,Unknown

China
Biodiesel,"400,000",Vege Oil,Unknown


References:
(1) TheStar Online article 29 July 2006: Optimism abounds in the plantation sector
(2) Biodieselnow.com forum
(3) People's Daily article 20 July 2006: Indonesian gov't to build 8 biofuel factories