Positive on EU’s removal of duties on biosdiesel import from Indonesia

23.03.2018

Analysts view the European Union’s (EU) removal of duties on biodiesel import from Indonesia as positive for crude palm oil (CPO) prices.

According to Reuters, the EU has removed duties on biodiesel imports for 13 Argentine and Indonesian producers following the end of legal proceedings at the European Court of Justice (ECJ), an EU document shows.

“The bloc set anti-dumping duties on imports of the renewable fuel from the two countries in 2013, but faced a series of legal challenges at the ECJ and the World Trade Organization (WTO).

“Both bodies ruled against the measures,” the article read. “Companies that had challenged the measures at the ECJ now no longer face duties.

“They include the Argentine arms of Bunge, Cargill and Louis Dreyfus, as well as Molinos Rio de la Plata and Indonesia’s Ciliandra Perkasa.”

The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) was not surprised by the news as WTO has ruled in favour of Indonesia on this issue and recommended changes to the measures in January 2018.

“However, the final decision by ECJ which is the highest court in EU is positive to CPO price as we expect higher demand for palm oil in the biodiesel segment.

“In the long run, this should lead to lower palm oil inventory level,” MIDF Research said.

For the European Union, the world’s top producer of biodiesel, rising shipments from Argentina and Indonesia threaten to cripple output, particularly after the United States imposed import duties of more than 70 percent.

Both countries impose an export duty on the raw material – soybeans for Argentina and palm oil for Indonesia – which the EU said means biodiesel producers in the two countries have lower costs than elsewhere, allowing them to “dump” product at unfairly low prices.

Overall, MIDF Research reiterated its positive view on the sector due to improved demand outlook for palm oil in 2018.

The research arm believed that the good global economy growth in 2018 should lead to higher consumption per capita.

“On the supply side, consensus estimate of huge supply growth may not be fully realised due to ongoing labor shortage and the potentially high replanting activity in Indonesia.

“Note that Indonesia plans to replant up to 165,000 hectares (ha) of oil palm plantation land this year.

“This could limit the supply surge by between 0.5 to 0.6 million tonnes assuming oil yield of 3.5 metric tonnes (MT) per ha.”

MIDF Research’s top picks for the sector were Kuala Lumpur Kepong Bhd (KLK) and Genting Plantations Bhd (Genting Plantations). MIDF Research liked KLK for the group’s earnings resiliency and decent dividend yield of 2.5 per cent.

Meanwhile, the research arm liked Genting Plantations as it expected the group’s fresh fruit bunch (FFB) growth at 13 per cent year on year (y-o-y) to be the strongest among planters under its coverage.

“This is due to new contribution from recently acquired estate of 12,893ha and 5,000ha coming to maturity in Indonesia.”

MIDF Research’s other buy calls were PPB Group Bhd, TSH Resources Bhd and FIMA Corporation Bhd


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