KUALA LUMPUR: Carotech Bhd will supply up to 84,000 tonnes of palm biodiesel to Trafigura Beheer BV, the Dutch subsidiary of Switzerland-based oil trader Trafigura group, beginning January next year under a contract worth up to RM200 million.

The deal came at a time when crude palm oil (CPO) prices had fallen by some 60% from the peak of over RM4,400 per tonne in March, and this has benefited biofuel producers such as Carotech which are able to cut raw material cost.

Carotech chairman and managing director David Ho said the contract would contribute “significantly” to the group’s bottom line for the financial year ending Dec 31, 2009 (FY09), as it would have a fixed margin for the deal.

“This agreement is also very important to Carotech, as it would take up more than 50% of our capacity and provide certainty to our operations, bankers and suppliers alike,” he told reporters here yesterday after the signing of agreement between the company and Trafigura.

Under the agreement, Carotech will supply 60,000 tonnes to 84,000 tonnes of its product, CaroDiesel, equivalent to 5,000 tonnes to 7,000 tonnes a month, to Trafigura. The sale price will be based on the prevailing CPO price.

Carotech’s two production facilities in Perak have combined annual capacity of 120,000 tonnes. Currently, the company runs at about half of its capacity. Ho said the latest contract from Trafigura would enable it to fully utilise its capacity towards year-end.

The biodiesel industry would see tougher challenges next year in view of global economic downturn, he said. “However, the outlook for biodiesel industry still remains bright with the European parliament reaffirming binding targets of 5% for biofuels in transport by 2015 and thereafter rising to 10% by 2020,” he said.

Trafigura representative Nicolas Chiche said there was strong demand for biodiesel in Europe, given that biodiesel was still cheaper than regular diesel. The group, claimed to be the world’s third largest independent oil trader, will sell CaroDiesel to Europe and the US.

Meanwhile, Deputy Minister of Plantation Industries and Commodities Senator A Kohilan Pillay, who witnessed the signing ceremony yesterday, said the country was expected to reduce its CPO stockpile by 500,000 tonnes when the mandatory usage of biodiesel (made of 5% processed palm oil and 95% petroleum diesel, known as B5) for all diesel vehicles takes effect next February.

According to Malaysian Palm Oil Board data, the country’s palm oil inventory hit a record high of 2.1 million tonnes as at end-October, up 6.9% from end-September, due to higher production and slowing exports to China and the Netherlands.

As the government would subsidise the production of B5, Kohilan said this biodiesel would be as competitive as regular diesel in terms of pricing. Carotech is qualified to supply B5, but Ho said further details on the implementation of the mandate were needed before the company commenced any production.

For the first nine months of this year, Malaysia exported 128,527 tonnes of biodiesel. To date, a total of 91 biodiesel licences have been issued with 15 plants in operation with a combined capacity of 16 million tonnes.