KL starts burning palmoil as fuel

KL starts burning palmoil as fuel

KUALA LUMPUR (Reuters): Malaysia will start burning crude palm oil as industrial fuel in April and also plans to set up a plant to process CPO into diesel to help cut a surplus in stocks and improve prices, officials said on Thursday.

"Malaysia will start burning CPO as fuel in April. The Primary and Industries Ministry has discussed the issue with Tenaga," a ministry official told Reuters.

Officials at Malaysia's largest power firm, Tenaga Nasional Bhd, were not available for comment.

Malaysia, the world's largest palm oil producer, has decided to reduce palm oil supply by 600,000 metric tons this year through replanting 200,000 hectares and using 500,000 tons of CPO to run power plants.

The government has also asked producers to set aside five percent of output for sale to the government at a fixed price of 725 ringgit ($190.78) a ton. The oil will be used as industrial fuel.

Also on Thursday, Primary Industries Minister Lim Keng Yaik said the government planned to build a plant with an initial capacity to process 500,000 tons of crude palm oil into diesel as part of its long term efforts to stabilize prices, which currently hover around a 10-year low.

The national Bernama news agency quoted Lim as saying the plant's capacity could be expanded to one million tons, adding that the processed CPO would become an import substitute for petroleum diesel.

Bernama did not say when or where the plant would be built and officials at the ministry could not be reached for comment. Malaysia is struggling to ease domestic stocks, which reached a record high of 1.52 million tons last November, because of poor exports and fierce competition with the world's second largest producer and arch rival Indonesia.

Traders said news of plans to use CPO as fuel partly supported the palm oil futures market on Thursday, but added that players were keen to hear more from the government and Tenaga.

Traders said market-friendly export figures for the first 15 days of March were the main reason behind Thursday's gains.

"Tenaga still can't confirm anything and people are bit cautious about the plan even though the government has said the burning would start in April," said one trader in Kuala Lumpur.

The benchmark third-month May futures gained 13 ringgit to 845 ringgit ($222.36) a ton.