Setting up a biodiesel consortium could address the high stockpiles which are pushing down prices, observers say, but long-term feasibility remains a question.

According to Alliance Research analyst Arhnue Tan, this is because cutting stockpiles will eventually raise prices and this could then put a biodiesel venture in jeopardy.

“Biodiesel is only viable when crude palm oil (CPO) prices are low. Otherwise, substantial subsidies are required.

"But at the current prices, subsidies won’t be needed for biodiesel,” she said.

She noted that biodiesel has only worked out in places like the United States and the European Union due to strong government support.

“But even then, there is an ongoing debate over whether the crops should be used for food rather than fuel,” she said.

Tan was commenting on the formation of Biodiesel Malaysia Sdn Bhd, a joint-venture between Malaysia’s palm oil giants - Sime Darby and Felda Global Ventures Holdings.

The two companies will own 50 percent of the venture, while the other half will be opened to other biodiesel players in the country.

The government has committed to subsidise Biodiesel Malaysia to offset CPO costs, and is expected to foot expenses from RM80 million to RM1.1 billion depending on prevailing CPO prices.

This is part of the government’s plan to implement the use of B10 biodiesel (90 percent diesel and 10 percent palm oil) nationwide by mid-2014.

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