Indonesia indicates it will step up biodiesel usage to help reduce its oil import and trade deficit. This is a positive for the sector as biodiesel is an  import  price  support  mechanism  for  palm  oil,  absorbing  excess supply.  Maintain  NEUTRAL  on  sector,  with  CPO  price  assumption  at MYR2,400 for CY13 and MYR2,600 for CY14, and unchanged stock calls save London Sumatra (LSIP; downgrade to NEUTRAL, FV: IDR1,401).  

- How  much?  The  Indonesian  government  is  targeting  to  introduce  a mandatory  10%  blend,  up  from  the  current  7.5%;  though  it  has  not specified any timeline for it. This will amount to 3m tonnes of palm oil to be used for biodiesel and at the same time reduces the country's crude oil  import  by  3m  tonnes.  We  believe  1.5m  tonnes  is  a  more  realistic target  for  CY14  as  indicated  by  a  major  Indonesian  biodiesel  producer who  is  already  working  together  with  the  government  to  build infrastructure to distribute biodiesel to Indonesia's various islands. So far,  biodiesel  is  only  mainly  used  on  Java  island  and  the  usage  is  not mandatory.  

 

Source: OSK