•     Energy market seen absorbing palm oil supply, boosting prices
•     Indonesia to increase biofuel mandate to 20% next year

26/11/2015 (Bloomberg) - Palm oil exports from Indonesia, the world’s biggest grower, may decline for the first time in at least eight years as the government increases the amount required in biodiesel production.

Shipments may drop as much as 10 percent from about 25 million metric tons this year, according to Bayu Krisnamurthi, the head of the government-appointed Indonesia Estate Crop Fund for Palmoil. Demand for biodiesel may climb to at least 7.1 million kiloliters (1.9 billion gallons) from about 1.3 million kiloliters in 2015, he said.

Indonesia will increase the mandated amount of biofuel in diesel to 20 percent next year from 15 percent. Rising biodiesel demand may help extend palm oil’s advance, with prices climbing 23 percent from a six-year low in August on concern that the strongest El Nino in almost two decades and haze from Indonesian forest fires will curb supply.

“Palm oil is in over supply and energy is the biggest and the most likely market that can absorb it,” Krisnamurthi said in a Nov. 19 interview in Jakarta. The Indonesian government is committed to boosting biodiesel demand as it’s cleaner than fossil fuels and the program will help reduce diesel import costs, he said.

The demand may support palm oil. Prices will range between $550 to $600 a ton in the first quarter and climb to $600 to $700 beyond the second quarter, Krisnamurthi estimated. Palm oil closed at 2,298 ringgit ($546) a ton on Bursa Malaysia Derivatives on Wednesday. Prices are up 1.4 percent this year.
Inventories

The success of the plan will rely on subsidies and hinges on diesel and gas oil prices, Dorab Mistry, director at Godrej International Ltd., said this month. Any impact on exports may be limited by existing stockpiles of palm oil in Indonesia.

Palm inventories in Indonesia were estimated at 2.94 million tons at the end of September, according to a Bloomberg survey published last month. Reserves in Malaysia, the world’s second-biggest producer, rose to a record 2.83 million tons in October, Malaysian Palm Oil Board data showed this month. Indonesian palm oil production will stagnate or fall about 3 percent to between 30.6 million and 32.3 million tons in 2016, Krisnamurthi estimated.

Low crude oil prices, resistance from auto makers in Malaysia and insufficient supply chain infrastructure in Indonesia have contributed to lower-than-anticipated biodiesel use in both countries, Fitch Ratings said in a Nov. 23 report. Crude oil has slumped more than 40 percent in the past year amid speculation a global glut will be prolonged.