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USDA GAIN: Biofuels

10 August 2012

USDA GAIN: Malaysia Biofuels Annual 2012USDA GAIN: Malaysia Biofuels Annual 2012

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 biodiesel 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.
USDA GAIN Report - Biofuels

Biofuel 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.

Biofuel 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.

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.

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.

Biofuel Production

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.

August 2012

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