Analyst: Higher biodiesel requirements in Indonesia will curb palm oil supply

A leading industry analyst warned on Tuesday that the implementation of higher biodiesel requirements in Indonesia, which is the world's largest palm oil producer will likely lead to a tightening of supplies of vegetable oil.

Indonesia has set a biodiesel blend that contains 35% palm oil as a minimum. It is now looking to increase this to 40% to reduce its energy imports.

If the plan is implemented, biodiesel could be consumed at 16 million kilolitres in 2019.

David Mielke, senior analyst at Oil World, told a Kuala Lumpur palm oil conference that the move would result in a reduction of exports due to an additional 1.5 to 1.7 millions metric tons.

He said on the sidelines that if we didn't have enough crude oil, Indonesia would increase the mandate by 5% and make the overall supply tight.

"It would be catastrophic for consumers worldwide because there would even be less oil available."

APROBI, the Indonesian biofuel producers' association, estimates that B40 will increase Indonesia's palm-oil use for biodiesel from the estimated 11,000,000 metric tons required this year to 13.9,000,000 metric tons with B35.

The global palm oil supply has been affected in recent years by lower production in Indonesia and Malaysia. This is due to the severe labour shortage caused by a pandemic, the lower use of expensive fertilisers and persistent wet weather.

Mielke stated that palm oil production will increase by 2.3 metric tons compared to previous seasons in 2024/25. The price of soybean oil is expected to rise to a premium compared to palm oil by the end of next June.

Julian McGill, managing director of Glenauk Economics, told attendees that palm oil would likely trade for around 4,000 Ringgit ($933.49) a metric ton by 2025.

Malaysia's benchmark crude oil futures have reached a new six-month trading high. The average price per ton has been 3,976.50 Ringgit so far this season.

McGill stated that the country's palm-oil production will be 19.4 million metric tons by 2024 compared to 18.55 millions metric tons in 2023.

He said that Indonesia's output is likely to be one million tons less than the 54.84 millions ton produced in 2020. Reporting by Danial Azar and Ashley Tang, Editing by Martin Petty & Tasim Zahid

(source: Reuters)