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Thai palm oil group calls for new biodiesel blending policy as delay sought to 7% mandate

Highlights

The Thai Palm Oil Association is urging the government to implement aflexible biodiesel blending policy that would allow fuel prices to rise whenpalm oil feedstock supply falls, instead of the current system that caps palmcooking oil prices, the group said Monday.

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When recent seasonal weather patterns caused palm oil production to dropsharply and pushed prices higher, Thailand's commerce ministry asked theenergy ministry to delay implementing its B7 mandate -- a blend of 7%palm-oil-based biodiesel and 93% diesel -- that was set to take effect January1, up from the B5 blend mandated in mid-2011. It asked the ministry to adopt aB4 mandate until palm oil supplies rebound.

The action was designed to protect a three-year-old Baht 42 ($1.32)/litercap on retail prices of palm cooking oil.

Any decision by the energy ministry to change the blending policy must beapproved by the prime minister, which is not possible under the currentcaretaker government.

Thailand is the world's third-largest producer of palm oil, but it iswell behind top producers Indonesia and Malaysia.

Thai industry sources estimate the country produced 2 million mt of palmoil last year, up from 1.8 million mt in 2012, with about half of the 2013output going into cooking oil, 30% to biodiesel and 20% exported as crude palmoil.

Successive governments have supported the cap on palm cooking oil priceswhile at the same time enacting increasingly higher biodiesel blendingmandates. However, the blending rates have shifted inconsistently and often onshort notice.

The palm oil trade group said the capped cooking oil price has distortedthe broader market as it no longer reflects production and distribution costs.

The association pointed to surging palm oil exports as one of thosedistortions. The value of Thailand's palm oil exports surged 39% year on yearto Baht 12.4 billion ($390 million) in November, according to customs data.

The industry also wants to see better management of local palm oilstocks, which typically hold 200,000-360,000 mt. The group said the lower endof the range is more optimal.

The B7 mandate was estimated to expand palm oil demand by 20,000mt/month from the B5 policy, an increase that the association described asrelatively small and manageable. The trade group said that means rolling backthe mandate to B4 would cut demand by 10,000 mt/month from the B5 policy.

Thailand's diesel consumption rose 2% year on year to 57.1 millionliters/day in the first 11 months of 2013, from 55.9 million liters/day,according to the Department of Energy Business.

--Gary van Zuylen, newsdesk@platts.com--Edited by Meghan Gordon, meghan.gordon@platts.com