RHB Research “neutral” on plantations despite higher biodiesel demand seen

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KUALA LUMPUR (Mar 17): RHB Research is maintaining "neutral" on the plantation sector despite Indonesia raising its biodiesel mandate, along with Germany’s legislation change which could potentially benefit palm biodiesel demand.

RHB Research analysts Alvin Tai and Hoe Lee Leng said in a report today that Indonesia’s biodiesel mandate rise to B15 from B10 last year and Malaysia’s steady pace of adoption should help neutralise the effects of weak crude oil price.

Tai and Hoe said, “We found it strange that Malaysia’s biodiesel export in the first two months this year has averaged 19,000 tonnes compared with 3,600 tonnes last year, given the current low crude oil price.

“We believe this could be due to a change in Germany’s biofuel legislation to that based on feedstock with the highest greenhouse gas (GHG) reduction,” they said.

They said according to Indonesian Ministry of Energy and Mineral Resources’ director general Rida Mulyana, the country could use 4.8 million tonnes of palm oil for diesel.

“While the news did not appear to excite the market, we take it as a positive development in which the Jokowi administration is supportive of biodiesel,” they said.

Nonetheless, the analysts are doubtful whether Indonesia’s infrastructure is ready for country-wide distribution of biodiesel, a problem hindering the biodiesel programme last year.

“We suspect that where there is ready infrastructure, more volume will be pushed through,” they added.

RHB Research preferred plantation stocks “Buys” are Bumitama Agri Ltd, PT Astra Agro Lestari Tbk and Genting Plantations Bhd.