Plantation - CIMB Research 2015-11-05: Indonesia reveals biodiesel suppliers

FIRST RESOURCES LIMITED EB5.SI GOLDEN AGRI-RESOURCES LTD E5H.SI WILMAR INTERNATIONAL LIMITED F34.SI FIRST RESOURCES LIMITED EB5.SI

Plantations - Indonesia reveals biodiesel suppliers

Pertamina and AKR will get 1.87m kls of biodiesel from suppliers for next 6 months.
Wilmar and First Resources were allocated 50% and 4% of the total volumes.
Biodiesel volume commitments are in line with government’s 4m kls target for 2016.
CPO demand may rise by 2m tonnes in 2016 if Indonesia meets its biodiesel target.
Positive for biodiesel producers in Indonesia and CPO producers in medium term.

Pertamina, AKR secure 1.87m kls for next six months Pertamina will get supply of 1.85m kiloliters (kls) of biodiesel and AKR Corporindo will receive 18,470 kls from Nov 2015 to April 2016, according to The Directorate General of New and Renewable Energy’s statements on its website.
The suppliers were picked based on recommendations from the government’s biodiesel procurement team and approved by the Energy Minister.

This is in line with the Indonesian government’s plans to expand biodiesel usage via subsidies from the CPO levy fund. To recap, the government started imposing a US$10- 50 per tonne levy on palm oil exports on 16 Jul.
Wilmar and First Resources received 50% (0.93m kls) and 4% (73,000 kls), respectively, of total biodiesel volumes awarded.

It was reported in Aug that Pertamina and AKR would purchase 765,000 kls of biodiesel for the remainder of 2015. Of which, they plan to buy 339,000 kls from 17 Aug to end Oct. This suggests that the target biodiesel consumption from Nov-Dec 2015 is around 0.426m kls and the rest of the biodiesel supplies secured (1.44m kls) is earmarked for first four months of 2016.

The biodiesel volumes secured are in line with the country’s target biodiesel consumption under “PSO” and “PLN” categories of 1.6m kls for 2015 and 4m kls for 2016. In 2014, Indonesia consumed around 1.8m kls of biodiesel.
If Indonesia achieves its 2016 biodiesel targets, we estimate that the country’s palm oil demand would be raised by around 2m tonnes or 7% of its total output and 3% of global CPO output.

If Indonesia successfully executes the biodiesel targets, this would be positive for CPO prices. Our concerns are enforcement and whether the CPO fund collected and allocated for biodiesel subsidies is sufficient to cover the biodiesel mandated volumes.
Assuming that the CPO agency collects US$700m in 2016 and allocates 80% of the total for biodiesel subsidy, we estimate that the fund would cover 3.3m kls of biodiesel volumes at current diesel and palm oil prices, assuming Rp2,287 subsidy per litre.

Ivy NG Lee Fang CFA CIMB Securities | http://research.itradecimb.com/ 2015-11-05

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