Palm oil

Palm oil: may see lift in sentiment on progress in the biodiesel space. State owned electricity company, PLN has secured 6,720 tons of biodiesel from Wilmar and Sinar Mas (majority owned by Golden Agri) to supply their seven diesel-fired power plants located in Medan (North Sumatra), Dumai (Riau), and West Kalimantan for the whole of 2014. The price is set at 91.37% of Means of Platts Singapore (MOPS), and the company continues to be in discussion with other producers as it aims to use around 1m tons of biodiesel for this year. The targeted biodiesel supply will be equivalent to about 26% of PLN's total diesel consumption needed this year for power generation, and could potentially take out 3-4% of the annual CPO supply in Indonesia. Hence, this is certainly positive for the sector, and also shows that PLN is serious in using biodiesel as an alternative fuel for power generation. Another near term catalyst may come from the from potential good take up in state owned oil distributor Pertamina’s biodiesel tender, which is looking to secure 3.3m KL of biodiesel p.a. or about 12% of annual CPO supply in Indonesia. Pertamina plans to announce the result of second tender sometime end of Jan 2014. As a participant of Pertamina tender, there is potential upside to First Resources if it obtains the tender. The counter remains Credit Suisse’s top pick in the sector (Outperform, TP $2.80).