Indonesia may produce about 2.5 million tonnes of palm oil-based biodiesel in 2016, about a third of its targeted volume, because of the widening spread between biodiesel and gasoil, a Malaysian industry official said on Monday. Indonesia, the world biggest palm oil producer, requires a 20 percent blend of biodiesel into gasoil in 2016 as it aims reduce its crude oil import bill, cut greenhouse gas emissions and create more demand for the edible oil.
The benchmark Malaysia palm oil futures climbed to their highest in almost two years in February at 2,648 ringgit ($648) a tonne, driven by expectations of higher palm oil demand to meet the greater biodiesel output. The market has lost about 4 percent since then due to weak demand and a stronger Malaysian ringgit.
"It will be difficult for Indonesia to fulfil its biofuel targets, given the fact that current differential between biodiesel and gasoil is well over $300 a tonne," U.R. Unnithan, deputy president of Malaysian Biodiesel Association told Reuters. Prices for palm methyl ester, the raw component of biodiesel, in Southeast Asia are currently at $630 a tonne versus gasoil prices in Singapore, the regional benchmark, at $44.07 a barrel, or about $328 a tonne.
Last year, President Joko Widodo increased biodiesel subsidies and raised the minimum bio content in diesel fuel to 15 percent from 10 percent. It has been raised to 20 percent this year and 30 percent in 2020. Indonesia consumed an estimated 1.5 million tonnes of biodiesel in 2015, which works out to a blend of about 7.5 percent if you take the nation's total gasoil consumption into account, said Unnithan, who is executive director at privately held palm oil producer Carotino Sdn. Bhd.
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