Palm Oil Internet Seminar

Anticipating 2014 Palm Oil Price Direction:
Update on Indonesia Biodiesel Policy and Progress
By: Ms. Ivy Ng

Ivy Ng is currently the Regional Head of Plantations and Head of Malaysia Research in CIMB. She is a CFA charterholder and holds a BSc in Economics from the London School of Economics. She has been covering the palm oil sector since the mid-90s and expanded her coverage to include the regional palm oil companies since 2005.

She joined CIMB in 2005 and currently covers regional plantations and conglomerates. Ivy has been an investment analyst since 1994, with prior stints in Affin-UOB, Peregrine Research, Hwang-DBS Securities and GK Goh Research.

Ivy was ranked number one by Asiamoney polls in the Malaysian industrial sector in 2014 to 2016 and utilities sector in 2007 and 2008. She was also voted Malaysia’s best power analyst in 2007 and best plantation analyst in 2008 by The Edge.

We hosted an Indonesia Plantation Day with a focus on the country’s biodiesel efforts. Overall, we are more optimistic on the biodiesel programme as we gather that the biodiesel tender is not the only avenue Pertamina is pursuing to secure biodiesel to meet the higher mandate, contrary to some expectations. The government appears ready to overcome any challenges to ensure the mandate is met. We expect the second biodiesel tender results by Pertamina to show a favourable take-up rate as the pricing mechanism for biodiesel has improved. If successfully executed, this could raise the biodiesel usage in Indonesia from 600k-1m kl in 2013 to around 3.3m-4m kl. This will, in turn, reduce the palm oil exports from Indonesia and boost CPO price prospects. We believe the market has not priced in the additional biodiesel demand potential from Indonesia due to concerns over pricing and logistics challenges. However, a successful tender and improved pricing for biodiesel could change market’s perception. We maintain our view that the government will raise its usage to 2m kl in 2014, lower than its target of 3.3m-4m kl. But there could be an upside surprise if it is able to secure most of the intended supply through the tender process.

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Questions & Answers (4) :
Hou Xuezheng
9 years ago
Ms. Ivy Ng, I can not open the pdf paper for it requires a password. would you pls help to check it? thank you
Azharuddin M Amin
10 years ago
Ms. Ivy Ng, As you mention above, The government appears ready to overcome any challenges to ensure the mandate is met. We expect the second biodiesel tender results by Pertamina to show a favourable take-up rate as the pricing mechanism for biodiesel has improved. i m still wory about that it can be realized or not, because our grand design of indonesian biodisel industry still not clear for supporting factors especially for economic infrastructure, other one, the Indonesian biodiesel industry is very affected by oil crude world price. we should try to find the biodiesel price elasticity compare to oil crude world price, to make good decision for indonesian biodiesel industry.
Ivy Ng
10 years ago
Dear Ryo, thank you for your queries. My view is that the risk of Indonesia not meeting the biodiesel target in the event of a sharp rise in CPO price is higher if they have not secure the biodiesel volumes needed to meet the higher mandates through their on-going tender exercises. If they are successful in locking in the biodiesel volume and prices, then the risk of not meeting target will be lower. To conclude, the success of the Indonesia's biodiesel policy will depend on: (1) economic viability of converting CPO to biodiesel (to ensure good take-up rate for Pertamina's tender/procurement process); (2) how much biodiesel they have locked in through the tender exercise. From my understanding, the feedstock use by most biodiesel players is refined CPO. As such, they won't be competing directly with domestic refiners to secure CPO but biodiesel players will be raising their demand for refined palm oil. This will boost Indonesia's palm oil products prices over time.
Ryo Furukawa
10 years ago
Ms Ivy, thank you for a comprehensive coverage of the Indonesian biodiesel industry and their recent mandate change. With the increase in local biodiesel demand, lower than expected production of palm oil, will likely increase the price of CPO. What is your opinion on: 1. The successfulness of the Indonesia biodiesel target as prices of CPO will continue to rise as they don't have a pricing policy / mechanism in place? 2. The affect on the downstream sector in Indonesia as a whole as aggressive investment was made by companies in Indonesia to leverage the lower local CPO prices. Will Indonesia refineries continue to get the local CPO at a discount as more CPO will be used for biodiesel, creating competition for palm oil as feedstocks for other palm based products?
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