Malaysia in talks to move startup of B10 biodiesel programme to July

* New biodiesel standards to use 709,000 T palm oil a year

* Mandate to call for B10 for transport, B7 for industry (Adds comments on automotive sector, updates prices)

By Emily Chow

KUALA LUMPUR, June 20 (Reuters) - Malaysia is in talks with oil companies about moving the start of its B10 biodiesel mandate to July, a month later than earlier planned, aiming now to complete full implementation of the new standard by August.

This takes into account time needed for oil companies to reset blending ratios and procure enough palm methyl ester (PME), said the ministry of plantation industries and commodities in an email to Reuters, referring to the bio component of biodiesel that comes from palm oil.

Malaysia, the world's second largest palm oil producer after Indonesia, had earlier said it would raise Malaysia's biodiesel mandate to 10 percent for the transport sector and to 7 percent for the industrial sector beginning in June.

The new standard would raise the minimum bio content of biodiesel from the current 7 percent, taking up more palm oil supplies and helping to stabilize Malaysia's palm prices.

Blending to the new standards is expected to consume 709,000 tonnes of palm oil annually versus estimates of 500,000 tonnes used under the current biodiesel mandate.

"The implementation of both B10 and B7 programmes requires coordination and cooperation from all petroleum companies, including Petronas, Shell, Chevron, Petron and BHP," said the ministry in its e-mail.

State-owned Petronas, Royal Dutch Shell, Chevron, Petron and BHP are responsible for blending diesel with PME at 35 blending depots throughout Malaysia, according to the ministry.

Construction of the blending facilities was funded by the government through the Malaysian Palm Oil Board (MPOB).

The plantations ministry is also in consultation with automotive companies on the implementation of the B10 programme for the transport sector beginning in July, it said in a separate statement issued later.

It also said that petrol stations in three of Malaysia's highlands would be exempt from providing that 10 percent blend, and petrol stations selling Euro 5 grade diesel would be allowed to retail the current B7 blend.

Local news outlet The Sun had earlier reported that the B10 programme would be suspended until further notice.

Palm oil traders, plantation companies and analysts had earlier questioned the feasibility of the government's B10 programme, citing low crude oil prices and weak implementation policies as barriers to the mandate's effectiveness.

Malaysia has 18 biodiesel plants in operation with 2.3 million tonnes in annual capacity, the plantations and commodities ministry said.

Benchmark palm oil prices have lost more than 7 percent so far this month on weaker export demand and as output is forecast to see a seasonal rise over the next few months.

Palm prices fell 1.7 percent to 2,409 ringgit ($593) per tonne on Monday. ($1 = 4.0620 ringgit) (Reporting by Emily Chow; Editing by Tom Hogue)