Malaysia's 2025 budget promotes palm waste SAF

: Agriculture, Biofuels, Chemicals
24/10/21

Malaysia's state-owned Petronas will work with palm oil producers to develop palm oil waste-based sustainable aviation fuel (SAF), according to prime minister Anwar Ibrahim when he presented the 2025 budget.

The palm oil producers include Malaysia-based agribusiness FGV and Malaysia-headquartered SD Guthrie, previously Sime Darby.

Anwar also announced additional higher tax brackets for crude palm oil (CPO) exports will be introduced from 1 November and proposed to increase Malaysia's windfall profit levy threshold for the palm sector. These changes are meant to ensure domestic CPO supply and encourage domestic production of value-added products including SAF and biodiesel, according to the Budget documents.

Progressive export duties will be introduced from 8.5pc when CPO prices rise above 3,600 ringgit/t ($837/t), up to a maximum 10pc for CPO prices above 4,050 ringgit/t. Previous duty rates capped out at 8pc for CPO prices above 3,450 ringgit/t.

This revised export structure is likely to weigh on palm oil prices, as exporters may reduce bids in the domestic market to keep prices below the threshold that will trigger higher export duties.

The CPO price threshold for triggering Malaysia's windfall profit levy will be increased to 3,150 ringgit/t for Peninsular Malaysia and 3,650 ringgit/t for Sabah and Sarawak from 1 January 2025, a rise of 150 ringgit/t from the previous threshold for both areas. The windfall profit levy applies to producers of palm fresh fruit bunches (FFB).

The revised export taxes and windfall profit levy threshold are expected to increase costs for the palm plantation sector, but would help the downstream palm refining industry become more competitive compared with Indonesia, according to industry consultancy Glenauk Economics.

Replanting funds

Malaysia will also allocate another 100mn ringgit to incentivise smallholders to continue replanting unproductive, ageing oil palm trees under its 2025 budget, the same amount from the previous year. The funding will be 50pc in grants and 50pc in soft loans, as in Budget 2024.

No land area target for replanting was specified this year. But this year's allocated funding of 100mn ringgit mirrored last year's allocation that targeted 5,900 hectares (ha) of land area. But this amount will likely not be enough to support adequate replanting, according to market participants.

Malaysia replanted an estimated 1.7pc of mature oil palm plantation areas during January-September and 2.6pc of mature areas in 2023, according to data from Glenauk Economics. This indicates more funding is likely needed to meet the 4pc industry standard for replanting mature areas yearly as recommended to maintain palm oil output volumes.

The low replanting rate has likely partly been because of high palm oil prices in recent years compared to the historical average. High prices discourage voluntary replanting as plantation owners prefer to continue harvesting FFB from older trees over replanting. Third-month crude palm oil (CPO) futures on Bursa Malaysia averaged 3,890 ringgit/t over the past two years up to 21 October. The average price recorded over the past 10 years was just 3,124 ringgit/t.

The US department of agriculture (USDA) estimated a quarter of planted oil palm areas in Malaysia were older than 25 years old as of early January, resulting in lower yields.

By Malcolm Goh

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