PUTRAJAYA: The European Union (EU) Parliament is wrong in voting to ban palm biodiesel, LMC International Ltd chairman Dr James Fry said, adding that continuous rejection in favour of homegrown rapeseed will see European consumers paying more for food.
“It is not easy for the EU to cut out palm methyl ester because the alternative to 3.5 million tonnes of palm oil is rapeseed. Diverting homegrown rapeseed oil to biodiesel creates a dilemma for the EU food market,” he said.
Fry said EU laws requires oils from genetically-modified crops to be labelled and that rules out Canadian canola to be used in its food market.
“Should the EU adamantly rejects palm oil from its food market too, food would definitely become unduly costly.
“Has the EU thought through such an implication? I think not. It’s a zero sum game,” the veteran vegetable oils analyst said.
Fry was addressing some 500 participants at a seminar organised by the Malaysian Palm Oil Board here today.
He said EU’s slowing purchase of palm oil is not dragging price down because it only consumes 10 per cent of the world’s 220 million tonnes of vegetable oils per year.
“The world’s appetite for palm oil, which is mainly for food, remains strong on global population growth,” he said.
Fry reiterated his long-held view that palm oil prices would continue to be highly influenced by petroleum prices.
When vegetable oil prices approach that of petroleum, biodiesel production and direct burning of vegetable oils become increasingly attractive options. This creates a floor price.
Fry noted when Brent crude oil trading at US$70 per barrel is converted in tonnage, it amounts to US$520 per tonne.
"Since palm oil traditionally trade at US$150 premium above Brent crude oil, this year it is foreseeable palm oil would average at around US$670 per tonne," he said.
For the past month, palm oil futures on Bursa Malaysia Derivatives Market averaged at around RM2,600 per tonne.
Earlier, Indonesian Palm Oil Producers Association or Gabungan Pengusaha Kelapa Sawit Indonesia (Gapki) executive director Fadhil Hasan said Indonesia via its biodiesel mandate helps support palm oil prices.
“We see palm oil prices averaging at between US$710 and US$720 per tonne this year because rising petroleum prices gives impetus for biodiesel usage to rise, too,” Fadhil said.