Palm oil-based biodiesel exports to China and EU surge in first quarter 2019

Surging biofuel demand from China and Europe has led to palm methyl ester (PME) exports from Indonesia and Malaysia climbing by more than 30% in the first quarter of this year, the Malaysian Reserve reported on 8 April.

The main reason behind the rise was the widening gap between the price of palm oil and Brent crude oil, which had jumped 27% in the first three months of the year, the report said.

“China started buying and the flows are seen to be healthy in the next several months”, although they still depended on diesel prices, said Heather Zhang, an analyst at consultancy firm PRIMA. “The arbitrage opened in February with the plunging prices, which makes palm more attractive to European buyers versus other feedstock such as waste-based biodiesel.”

The increased exports were a rare bright spot for Malaysia and Indonesia, as they saw palm prices falling by more than 8% in the past two months amid concerns over the size of stocks and lacklustre demand, the Malaysian Reserve wrote. The price slide wiped out gains made in January, and also came as the European Union (EU) moved to cap the amount of palm-based biofuel that can be used in the bloc.

Shipments of PME from Malaysia and Indonesia to Europe probably climbed more than 30% to 145,000 metric tonnes in first quarter 2019, Zhang said, citing her analysis and discussions with industry executives. The export flowing out of Malaysia alone could reach 100,000 tonnes in April, including shipments to the EU and China, she said.

According to Bloomberg data, palm oil’s discount to diesel reached about US$106/tonne on 14 March, the widest level since November, compared with the average discount of about US$66/tonne in 2018.

The Malaysian Reserve said China’s PME imports grew almost 50-fold to 751,056 tonnes last year, thanks to the low price.