Higher biodiesel mandates in Indonesia set to curb palm oil supplies
24/10/2024 (Oils & Fats International) - The introduction of higher biodiesel blending mandates by Indonesia is likely to tighten palm oil, according to a leading analyst quoted in a Reuters report.
Indonesia – the world’s leading palm oil producer – currently has a mandatory 35% blend of palm oil in biodiesel (B35) and is looking to increase this up to a 40% blend (B40) in a bid to reduce its energy imports.
If implemented, the move could lead biodiesel consumption to rise to 16M kilolitres next year, the 8 October report said.
In addition, the proposal would involve an extra 1.5M- 1.7M tonnes of palm oil, leading to lower export volumes, Oil World senior analyst David Mielke told a palm oil conference in Kuala Lumpur.
“In a situation where we don’t have enough oil, Indonesia increasing the mandate by 5% would make overall supply tight,” he told Reuters.
“For the consumer worldwide, it would be catastrophic because there would be even less oil available.”
According to estimates by Indonesia’s biofuel producers’ association APROBI, B40 will boost the country’s palm oil use for biodiesel to 13.9M tonnes from the estimated 11M tonnes needed this year for the B35 blend.
Global palm oil supplies have been affected in recent years by lower output by the world’s two biggest exporters, Indonesia and Malaysia, due to a pandemic-induced severe labour shortage, lower application of costly fertilisers and persistent rainy weather conditions, Reuters wrote.
Palm oil production is expected to increase by 2.3M tonnes in 2024/25 compared to the previous season, with prices for soyabean oil expected to rise at a premium over palm oil at the latest by next June, according to Mielke.
Glenauk Economics managing director Julian McGill told the event palm oil was likely to trade at around MYR4,000 (US$933.49)/tonne in 2025.
Malaysia’s benchmark crude palm oil futures have traded at an average of MYR3,976.50 (US$923.68)/tonne this year.
However, palm oil prices have dropped from their highest level in six months due to lower crude oil and soyabean oil prices reducing the appeal of biofuels, Yahoo! Finance wrote citing a Bloomberg report.
Crude oil prices dropped following China’s Finance Ministry briefing on 12 October which lacked new stimulus to boost consumption by the world’s leading importer, the 14 October report said.
Declining crude oil prices reduced the incentive to process vegetable oils into fuel, the report said.
Palm oil prices had also been impacted by lower soyabean oil prices, Anilkumar Bagani, head of research at Mumbai-based Sunvin Group, was quoted as saying.
Despite this, the palm oil sector remained strong, with rising exports and signs of weaker production in the world’s second-largest producer Malaysia, the report said.
Malaysian exports increased by more than 13% in the first 10 days of October compared to the previous month, according to data published by cargo surveyor Intertek Testing Services.
Meanwhile, output in the nation’s southern peninsula dropped 6.5% during the same period compared with the previous month, Bagani said, citing figures from the Southern Peninsular Palm Oil Millers Association.