Price movements of crude palm oil are decoupling from crude oil, making biodiesel production unprofitable, Rabobank said in its monthly report Monday.
Over the short term, the weak global economic situation will continue to suppress palm oil prices, but in the long term, as the underlying supply-demand imbalance becomes more apparent, there will be support for the prices, the bank said in the report.
“The price movements between palm oil and crude oil appear to show some level of decoupling. While crude petroleum prices have fallen significantly over the past two months, prices of palm oil show the contrary.”
The report pointed out that biodiesel producers have been badly hit by the commodity-price cycle, both during the upswing and the downswing.
After the recent slump, crude oil prices have fallen so much that biodiesel production is still unprofitable, it said.
Biodiesel production is highly dependent on government subsidies, but one of the major users, the European Union has imposed a requirement whereby carbon emissions from biodiesel must be 35% less than that from crude oil, said the report.
It said palm-based biodiesel faces significant hurdles in meeting this requirement, and therefore Malaysia and Indonesia are trying to give a push to local sales of biodiesel.
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