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Informist, Friday, Jan. 9, 2026

By Afra Abubacker

NEW DELHI – Indonesia's plan to hike its palm oil export levy is likely to provide a mild support to global prices and raise India's import costs, analysts said. A higher levy would help divert more palm oil for biodiesel production in Indonesia but the impact is expected to be felt more on prices than on supply, given comfortable global inventories, they said. 

According to media reports, Jakarta plans to increase the export levy on palm oil from the current 10% to fund its biodiesel blending programme. Indonesia has implemented a mandatory 40% biodiesel blend, known as B40, and aims to increase it to B50 later this year. 

"Whether it is B40 or B50, it (export levy) has to be raised, according to an economic affairs ministry study," Reuters quoted Eniya Listiani Dewi, an official in Indonesia's energy ministry, as saying on Thursday. She added that cash reserves managed by the country's plantation fund were dwindling.

Indonesia finances its biodiesel programme using proceeds from palm oil export levies, which are currently set at 10% of the monthly reference price for crude palm oil. The levy on refined products ranges between 4.75% and 9.5%.

Market participants expect Indonesia to raise its palm oil export levy to 15-20% from the current 10%. However, such an increase is unlikely to be implemented immediately and may come into effect from March or later. 

"It will likely get implemented from March onwards because B45 is still under implementation. It has not been fully rolled out," said K.N. Rahiman, edible oil analyst at Greenleaf. 

Any increase in the export levy would raise the landed cost of Indonesian crude palm oil, prompting buyers to look at alternative markets such as Malaysia, said Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental, pointing to the recent rise in Malaysian palm oil prices. On Thursday, the March contract of crude palm oil rose 0.3% on Bursa Malaysia Derivatives amid media reports of the higher Indonesian export levy, and gains were capped due to higher Malaysian inventories. At 2036 IST, the contract traded 0.1% lower at 4,038 ringgit (INR 89,329.9) per tonne.

However, the scope for switching away from Indonesian supplies remains limited. "We cannot replace the entire Indonesian supplies with Malaysia. Buyers have long-term contracts and cannot switch origins altogether," Thiagarajan said. 

India's import data underscores its reliance on Indonesia. In the 2024-25 edible oil year ended October, India imported 3.58 million tonnes of palm oil varieties from Indonesia, against 2.80 million tonnes from Malaysia, according to data from the Solvent Extractors' Association. 

Analysts, however, said that India is relatively flexible in switching origin at the margin. When levies or reference prices are lower in one market, shipments tend to shift accordingly. Even a price difference of $20-$50 per tonne can influence the sourcing decisions, Rahiman said. In November, India imported 303,123 tonnes of palm oil from Malaysia, compared with 126,956 tonnes from Indonesia, according to SEA data. 

The proposed levy hike signals Jakarta's intent to divert more palm oil for biodiesel, potentially tightening the exportable surplus. "The plan to hike export levy shows the government's commitment towards higher biodiesel blending towards B45 or B50. And if that is on the table, then you have almost 1.5 million tonnes of palm oil going out of the market," Rahiman said. 

Still, analysts believe the immediate impact will be more pronounced on prices than on availability. "Prices will definitely move higher, but supply will not be affected immediately. Whether it is Indonesia or Malaysia, we have comfortable stocks for January to March," Rahiman said. 

He does not see significant upside in Malaysian crude palm oil prices. "Malaysia is currently facing high stock levels, with inventories possibly rising towards 3 million tonnes. Without meaningful stock drawdowns, rallies lack fundamental support," he said. 

"Prices may rise on speculations, but without a reduction in stocks, a sustained rally above 4,200-4,300 ringgit per tonne is unlikely," he said. Levels around 4,000 ringgit would attract most buyers as they offer a reasonable discount to soyoil, Rahiman said. 

India's palm oil imports are expected to rise in February and March due to stronger demand during Ramadan and other local festivals as well as easing winter conditions. From April onwards, competition from soyoil will intensify as South American supplies enter the market at a discount. "As far as industrial demand is concerned, the core demand sticks to palm oil. But the additional incremental demand will go to soyoil, because it is cheaper from April onwards," Rahiman said.  End

US$1 = INR 90.16

Edited by Akul Nishant Akhoury

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