Regional Plantations - Maybank Kim Eng 2019-03-14: EU Proposes To Ban Palm Biodiesel From 2030

Regional Plantations - Maybank Kim Eng Research | SGinvestors.io FIRST RESOURCES LIMITED (SGX:EB5) BUMITAMA AGRI LTD. (SGX:P8Z)

Regional Plantations - EU Proposes To Ban Palm Biodiesel From 2030


~3.73m MT of biodiesel demand under threat

  • Subject to the endorsement of EU members and EU Parliament within the next two months, the EU Commission has singled out palm oil for removal from transport fuel by 2030 (with some exemptions). The use of palm biodiesel will be capped at 2019 levels until 2023 and reduced to zero by 2030. EU used ~3.73m MT of biodiesel in 2018.
  • This is longer term negative for palm oil demand if Indonesia and Malaysia fail in their bids to challenge this decision at WTO.
  • We remain NEUTRAL on the sector.
  • Our BUYs are FIRST RESOURCES LIMITED (SGX:EB5), BUMITAMA AGRI LTD. (SGX:P8Z) and Sarawak Oil Palms.



EU singled out palm biodiesel for ban

  • According to Reuters, the European Commission has concluded that palm oil cultivation results in excessive deforestation and its use in transport fuel should be phased out.
  • The Commission concluded that 45% of the expansion of palm oil production since 2008 led to destruction of forests, wetlands or peatlands and resultant greenhouse gas releases. That compared to 8% for soybeans and 1% for sunflowers and rapeseed. It sets 10% as the dividing line between less and more harmful feedstocks.
  • The use of more palm biodiesel will be capped at 2019 levels until 2023 and reduced to zero by 2030 although there are some exemptions.
  • However, in a bid to appease palm oil producing countries such as Malaysia, Indonesia and Colombia, the Commission introduced a number of exemptions such as the possibility to count under the EU green goals palm oil coming from small farms (ie less than 2 ha of land). And producers who could show they had intensified yields could be exempt. It could then be argued that their crops cover demand for biofuel and for food and feeds, without the need to expand onto non-agricultural land.


A complain and a trade war to follow?

  • This proposal to ban palm oil in EU transport was first mooted a few years ago. But it is now one step closer to becoming a reality. It has caused uproar in Indonesia and Malaysia which will likely challenge this law at World Trade Organization, as well as impose other retaliatory measures.


Industry has time to seek new markets and use

  • The EU ban on palm biodiesel is negative for palm oil demand (and prices) in the long term. EU used ~3.73m MT of biodiesel in 2018 (out of 7.54m MT total palm oil consumption in EU), equivalent to 5.3% of global palm oil consumption. The only positive is the palm oil industry has until 2030 to find alternative markets and use.
  • Furthermore, the impact will also be somewhat mitigated by the expected slowdown in the industry’s palm oil growth from 2020 given recent slowdown in new plantings in this region and accelerated replanting required for the older estates in the coming years.
  • We make no changes to our MYR2,350/t CPO ASP forecast for 2019 (2018 CPO spot price: MYR2,235/t).





Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-03-14
SGX Stock Analyst Report BUY MAINTAIN BUY 2.030 SAME 2.030
BUY MAINTAIN BUY 0.970 SAME 0.970



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