Live Chat Software
Berita Dan Riset Terbaru
Company Research
Danareksa Equity Snapshot - Plantation Sector (NEUTRAL) Ramping Up The Biodiesel Usage
March 12, 2018 10:36


Ramping Up The Biodiesel Usage

We met with Mr. Dono Boestami, the President Director of the Oil Palm Plantation Fund Management Agency (BPDPKS), and discussed several issues in the palm oil industry, including Indonesia’s biodiesel program and smallholders’ replanting program. The key takeaways are as follows:

Need to boost biodiesel volumes in the future. From our visit to the Oil Palm Plantation Fund Management Agency (BPDPKS), they stressed the need to boost biodiesel volumes in FY18 in order to support CPO demand and prices. Factors such as China’s preference for soy products, higher import taxes on edible oils in India, and Europe’s black campaign against palm oil have undermined palm oil demand. As such, Indonesia (the largest consumer of palm oil) will need to play a key role in absorbing any lost demand by increasing its biodiesel usage.

Does BPDPKS have enough funds to provide biodiesel incentives? Yes, they stated that they have more than enough funds to support the biodiesel program, but the overhang lies in the regulation. Higher crude oil prices have reduced the current biodiesel incentive to below Rp3,000/liter. The government targets biodiesel absorption of 3.5mn KL in FY18 (+48% YoY), although it is believed realization will be below as rollout of the non-PSO sector is likely to be slow. Assuming FY18 target collection of Rp13tn (70% of it reserved for the biodiesel program), a CPO price of MYR2,700/ton, and a USD60/bbl oil price, we estimate biodiesel volume of 4.0mn KL.

What to expect next? The government targets to broaden the scope of the biodiesel incentive to the non-PSO sector (mining equipment, trains and military vehicles) starting in May 18. As such, we should expect the government to revise Presidential Regulation No.61/2015 on the collection and use of oil palm estate funds soon. Stipulated changes include: 1) streamlining the regulation to incorporate both PSO and non-PSO into the content, 2) revised technical details on the incentive mechanism for both PSO and non-PSO and 3) capping the biodiesel incentive at a maximum of Rp4,000/liter for both PSO and non-PSO. Based on our checks, there have been no reported technical issues related to blending requirements for non-PSO; hence the overhang now lies in the regulation.

Smallholders’ replanting program. The agency has also commenced the replanting program for smallholders and plasma farmers in Oct 17. The goal is to replant a total of 2.4mn Ha, with a replanting target of 185k Ha set for FY18. Among the replanting criterion are: 1) conformance to land legality aspects and sustainability principles, 2) ISPO certification, 3) FFB productivity < 10 tons/Ha and plant density < 80 trees/Ha and 4) the requirement for smallholders to be in a cooperative and have a partner or legal entity. If those criterions are met, the agency will grant a replanting incentive of IDR25mn/Ha.

Maintain neutral. We maintain our neutral stance on the plantation sector in FY18 with a CPO price assumption of MYR2,700/ton.

… read more 20180312 Plantation