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Informist, Wednesday, Mar. 26, 2025

 

By Anjali Lavania

 

MUMBAI – Indonesia's plan to increase export levy on crude palm oil to 10% from the current 7.5%, and on palm oil products to 4.5% from 3% may lead to its export prices rising to a level that may make them uncompetitive in the global markets. This move, announced by Indonesian Plantation Fund Agency on Mar. 18, is aimed to bolster the country's biodiesel project, mandating an increased proportion of palm oil in blend. 

 

This year, Indonesia implemented the B40 biodiesel programme that mandates 40% blending of palm oil-based biodiesel with diesel fuel from Jan. 1. However, the full implementation saw a brief delay, with the transition period extending into February. The government expects complete adoption by March end.

 

Increase in export levy will lead to further rise in crude palm oil prices, making it ultimately, the costliest oil among all edible oils, said Rahul Chauhan, Director of iGrain India.

 

"As of December 2024, Indonesia's CPO reference price was set at $1,071.67 per metric tonne. With the export levy increasing from 7.5% to 10%, the levy would rise from approximately $80.38 to $107.17 per metric tonne. This increase may reduce the competitiveness of Indonesian palm oil in the global market, potentially leading to a decrease in exports," said Indrajit Paul, head of research at Argocorp International.

 

"Palm oil prices were already running on premium and with the implementation of levy by the Indonesian government, prices will increase more which will lead to less demand by countries like India. Currently India is buying only 350,000-400,000 tonnes of crude palm oil per month, the barest minimum demand till now. Importers will shift their demand to sunflower oil and soyoil," said Sandeep Bajoria, chief executive officer at Sunvin Group.

 

During Nov-Feb, India imported from Indonesia 639,522 tonnes of crude palm oil and 503,531 tonnes of refined, bleached, and deodorised palmolein, according to the data by the Solvent Extractors' Association of India.

 

"Normally palm oil prices remain low compared to other oils, but currently due to low production in countries like Malaysia and Indonesia's B40 programme, palm oil traded at premium. With the coming of the export levy, CPO prices will increase further. As a result, prices of soyoil, sunflower oil will improve as robust demand will be there for these soft oils," said Chayan Soni, commodity research analyst at Suguna Foods Pvt. Ltd.

 

However, the move may mark the beginning of a shift in the oil market dynamics. "The Indonesian government's move to increase the export levy aims to fund its ambitious biodiesel programme, promoting energy security and reducing carbon emissions," Paul said. "While this may lead to short-term competitiveness challenges, it could position Indonesia as a leader in sustainable energy. In the long term, the global palm oil market may experience shifts in trade dynamics, with countries like Malaysia potentially gaining market share. Overall demand in the long term for palm oil is expected to remain robust, driven by its versatile applications and growing emphasis on renewable energy sources," he said.  End

 

US$1 = INR 85.77

 

Edited by Vandana Hingorani

 

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