Extension of Malaysia lockdown hurts biomass output

The restrictions on movement are also making it more difficult for many palm kernel shells (PKS) suppliers to operate. The Malaysian state government of Sabah imposed the strictest measures on the palm oil industry by today imposing a lockdown on plantations during 25-31 March and on mills for 27-31 March.

The national government initially imposed a shutdown of non-essential businesses for 18-31 March but the order has been extended as there are 1,796 confirmed cases of coronavirus in Malaysia, the highest in southeast Asia. The shutdown order initially included palm oil mills and plantations, but they managed to successfully appeal against this order. But Sabah's government said today it was closing palm oil estates and mills across the districts of Tawau, Lahad Datu and Kinabatangan until at least the end of this month to curb the movement of palm oil workers after some farm workers tested positive for the virus.

At least one PKS market participant said today it had to declare force majeure on a PKS cargo in Sabah that it cannot load, even though it had a full cargo ready. Another PKS supplier elsewhere in Malaysia said it has been unable to load a PKS cargo this week, as the restrictions on movement has upset logistics and made it hard to find workers to screen and operate stocks and move cargoes.

Sabah is Malaysia's largest palm oil producer, accounting for 25pc of Malaysia's 19.9mn t of crude palm oil production in 2019. Malaysia is also the second-largest exporter of wood pellets and PKS in Asia after Indonesia. Malaysia exported 707,000t of PKS in 2019, up by 88pc from a year earlier, with most sold to utilities in Japan. Malaysia also exported 615,000t of wood pellets in 2019, down by 13pc from 2018.

PKS supplies in Indonesia and Malaysia are already tight because of the current low production of fresh fruit bunches. This pushed the spot east coast Sumatra Indonesian PKS price up above $100/t last week for the first time since Argus began the assessment in May 2017. Argus assessed the price at $101.42/t on 18 March, an 11pc increase since the start of this year.

Buyers in South Korea and Japan still need biomass for their power plants. South Korean buyers of wood pellets have said they will try to reschedule cargoes with suppliers, although they had not expected Malaysia's wood pellet factories to be closed until as late as 14 April.

Raw material shortages have already tightened supplies of wood pellets from Vietnam and Malaysia, as a result of China's reduced demand for furniture and wood products following the outbreak of the coronavirus. Fob Vietnam wood prices edged up over the previous week to close at $98.95/t on 18 March.

The coronavirus outbreak is spreading in southeast Asia, with Thailand yesterday declaring a one-month state of emergency. Thailand was the second-largest consumer of PKS in 2019, importing 587,693t from Indonesia, according to customs data. Cases are also rising in Indonesia, which is a major exporter of LNG, coal, palm oil, PKS and other commodities, while it is a minor exporter of wood pellets.

By Claire Pickard-Cambridge, Lauren Moffitt and Sam Hong