Oil Palm Industry Economic Journal Vol. 7 (2) September 2007 p. 19-27

Impact of Palm Oil-based Biodiesel Demand on Palm Oil Price

Ramli Abdullah; Roslan Abas and Ayatollah, K
Received:    Accepted:    Available Online:


Biodiesel has become an important renewable fuel, especially with the high price of petroleum and growing concern for the environment. This article analyses the impact of the rise in biodiesel demand on the price of Malaysian palm oil. The demand for biodiesel would reduce the volume of palm oil available in the market, putting upward pressure on its price and those of other vegetable oils. With this recent new demand, the palm oil price has increased sharply since July 2006, which can be taken as the date when the palm oil price began to be influenced by the traditional economic factors, such as its production, price of soyabean oil, stock-usage ratio and weather, as well as by the new demand for biodiesel. The autoregressive integrated moving average (ARIMA) method was used to estimate the palm oil price from July 2006 to end 2007 without the effect of biodiesel. This showed a rising trend – as with biodiesel included – but much less steep than with the effect of biodiesel included. This result was confirmed by the time-varying parameters model used to compensate for the ARIMA results. Using the model and considering all the factors, including biodiesel demand, the palm oil price is forecast to remain high, averaging RM 3500/t for 2008.

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