The government has raised Malaysia's biodiesel blending mandate for the transport sector from 7% to 10% from Wednesday, the Ministry of Plantation Industries and Commodities announced Tuesday.
It also introduced a new blending program for the industrial sector with a biodiesel blending mandate of 7%.
The implementation of B10 and B7 programs are expected to lead to an annual consumption of 709,000 mt of biodiesel, the ministry said. It would lead to a saving of 820 million liters of gasoil and CO2 emissions reduction of 2.16 million mt, it added.
Calling the mandate a "mildly positive" development for Malaysia, Ivy Ng, Regional Head of Plantations and Equities Research for CIMB Bank, said that the demand generated as a result would be about 3.6% of the country's estimated CPO output and utilizes 28% of installed biodiesel capacity of approximately 2.5 million mt.
Meanwhile, Ng said in a note that CIMB expected biodiesel consumption to rise by 1.08 million mt following the implementation of the B10 mandate.
The lower biodiesel demand estimate by the ministry could be because transport fuel is no longer subsidized and this had probably cut gasoil consumption in the country, she added.
She pointed out that Indonesia's B20 mandate was much more aggressive raising its biodiesel consumption target to 2.3 million mt for this year.
Indonesian demand would have a bigger effect on the price of palm oil than Malaysia's, she said.
CIMB has kept its average CPO price forecast unchanged at MR2,450/mt for 2016 and MR2,600/mt for 2017.
