India Races Ahead While Malaysia’s Biodiesel Ambitions Plateau
22/10/2025 (Business Today) - India and Malaysia are taking divergent paths in their biofuel journeys, reflecting the structural and economic constraints shaping Asia’s energy transition, according to a new report by BMI, a Fitch Solutions company.
While India’s ethanol industry is undergoing explosive growth backed by strong policy mandates and rapid capacity expansion, Malaysia’s biodiesel sector appears to have reached a structural plateau, limited by feedstock constraints and the high opportunity cost of diverting palm oil from exports.
India’s Ethanol Surge Fueled by Ambitious Mandate
BMI projects India’s ethanol production to surge 45.9% year-on-year in 2025, reaching 8.1 million tonnes, driven by the government’s aggressive blending target and a nationwide infrastructure buildout.
The country’s ethanol blend rate reached 20% as of October 2025, up from an average of 18.7% earlier in the year, positioning India among the world’s fastest-growing biofuel markets. The expansion is supported by the commissioning of over 1,200 ethanol refineries in 2025, up from 270 a year earlier, bringing total production capacity to 15.8 million tonnes.
This capacity could theoretically meet 35% of India’s motor gasoline demand by 2030, BMI noted, with the government expected to set a 30% blend target by the end of the decade.
However, the report cautions that feedstock volatility remains India’s biggest challenge. Severe droughts in recent years slashed sugarcane output, prompting the government to prioritise food security and cut sugarcane syrup allocation for ethanol by more than 75% in 2024 before rebounding this year.
“At current blend levels, India’s margin for error is shrinking,” BMI warned. “Each percentage point increase in the ethanol mandate amplifies feedstock vulnerability.” The report predicts that India’s biofuel growth will remain robust but highly volatile, requiring the government to balance between energy goals and agricultural stability.
Malaysia’s Biodiesel Growth Hits a Structural Ceiling
In contrast, Malaysia’s biodiesel production is expected to remain flat, reaching 1.3 million tonnes in 2025 and 1.35 million tonnes in 2026, representing just 0.5% annual growth.
BMI describes Malaysia’s biodiesel industry as “mature but stagnant,” with production capped by limited domestic consumption and strong export incentives for palm oil. The country has maintained a 10% domestic blend rate (B10) since 2019, and while the government has discussed moving to B20, the economics remain unfavourable.
A 20% biodiesel blend would require 2.5 million tonnes of biodiesel, nearly maxing out Malaysia’s installed capacity of 2.7 million tonnes — an unrealistic utilisation rate of 92%. More critically, such a mandate would demand an extra 1.1 million tonnes of crude palm oil, even as BMI forecasts a domestic shortfall of 600,000 tonnes in 2025/26.
“Malaysia faces a binary choice: export crude palm oil at high global prices or divert it to domestic biodiesel production,” the report stated. Unlike Indonesia, which has prioritised domestic biofuel mandates despite export losses, Malaysia continues to favour export revenues, particularly as global palm oil prices stay elevated.
BMI added that without significant new investment or a policy shift prioritising energy security over export earnings, Malaysia’s biodiesel output is likely to remain structurally constrained through the end of the decade.
Regional Outlook: Constraint, Not Capacity, Will Define Asia’s Biofuel Future
BMI concludes that Asia’s biofuel landscape will be shaped not by aggressive capacity additions but by feedstock availability, export revenue trade-offs, and policy flexibility.
“Through 2030, Asia’s biofuel growth story will hinge less on volume and more on how each market navigates its constraints,” the report said. “India’s ethanol sector embodies rapid expansion tempered by agricultural risk, while Malaysia’s biodiesel market illustrates the limits of a resource-rich yet export-dependent economy.”