The rising costs of crude palm oil (CPO) has been largely seen as a positive trend by most parties in Malaysia with the important exception of one – the palm oil biodiesel industry. With CPO prices rising to above RM2,000 per tonne, many biodiesel plants are finding feedstock prices rising and cutting into their profit margins. This has resulted in plants drastically cutting production, although to date no plant has had to cease operations.

Furthermore, although the Malaysian government has stated that around 500,000 tonnes of biodiesel would be needed once the B5 programme comes fully on-stream in 2010, so far take-up has been quite slow. Critics have claimed that the government’s inaction on solving certain problems such as that of financing, logistics, and infrastructure costs has hampered efforts.

The decline in the biofuels industry however is not just limited to Malaysia alone. Around the world, the economic downturn and the subsequent reduction of the prices of fossil fuels such as oil and gas have led to those two regaining acceptance and popularity. While the biofuels hype came about in mid 2008 when crude oil reached more than US$120 per barrel, the initiative has lost its momentum following the sharp decline in oil prices.