Informist, Thursday, Jan. 9, 2025

By Anjali Lavania

MUMBAI – Indonesia's plan to increase its biodiesel blending mandate and duty on palm oil exports are expected to change the global dynamics of the edible oil industry, posing challenges for large importers like India, analysts said.

According to available reports, Indonesia is planning to implement higher biodiesel blending mandates, increasing the blending ratio of palm-based biofuel with diesel to 40% (B40) in 2025 and aiming for 50% blend (B50) by 2026. It also plans to increase its export levy on crude palm oil to 10% from the current 7.5%. The south-eastern country recently increased its biodiesel allocation to 15.6 million kilolitres in 2025, up from 12.9 million kilolitres in 2024. This is expected to lead to a fall in export surplus of palm oil from the country, essentially driving it to self-consumption.

Higher export duties could shift buyers to Malaysian crude palm oil, boosting its market share and prices, said observers.

Indonesia and Malaysia are major suppliers of palm oil to India. The country's crude palm oil imports fell nearly 21% on year to 547,309 tonnes in November, according to the Solvent Extractors' Association of India. During the month, India imported 242,681 tonnes of crude palm oil from Indonesia and around 261,488 tonnes from Malaysia.

India, the world's largest importer of palm oil, will face significant challenges in the long run due to Indonesia's shift to biodiesel and growing demand for Malaysia's palm oil, said Indrajit Paul, head of research at Agrocorp International. "This will directly impact India, increasing its edible oil import costs and adding to food inflation," he said.

Agreeing with this view, Rahul Chauhan, director of IGrain India, said: "Malaysian palm oil demand may increase if Indonesia increases its usage and export levy."

In oil year 2023-24 (Nov-Oct), India imported 4.83 million tonnes or 55% of its palm oil requirement from Indonesia, 3.25 million tonnes or 37% from Malaysia, and 74,000 tonnes or 8% from Thailand, according to data given by Paul. As Indonesia's exportable supply diminishes, India will likely turn to Malaysia for a larger share of its palm oil needs. However, rising global demand for Malaysian palm oil, coupled with its projected export decline of 4% in 2024-25 to 15.9 million tonnes, could further strain India's import costs, Paul said. This scenario underscores India's dependence on palm oil imports and its vulnerability to supply disruptions, he added.

"Currently palm oil shipment prices to Kandla port are seen at $1,305 per tonne, down weekly by 3.6% and down monthly by 9.5%," Paul said. Prices are falling currently, because Indonesia delayed B40 blending by 1.5 months, which was supposed to happen in January 2025. However, in the long-term palm oil prices are expected to rise, he said.

"This initiative, part of Indonesia's broader energy transition strategy to achieve energy self-sufficiency and eliminate diesel imports by 2026, will divert a substantial portion of domestic palm oil production from exports to internal consumption. Currently, 25% of Indonesia's annual palm oil production is used for biodiesel, and this share is set to grow, thereby tightening global supply and potentially driving up palm oil prices," Paul said.

Consumption in Indonesia is projected to rise by 6% to 22.3 million tonnes in 2024-25, up from 21.1 million tonnes the year before, according to data provided by Paul. Even with an 8% production increase to 46.5 million tonnes, export growth will be modest at 9%, reaching 24.2 million tonnes. These trends will tighten global supply, with Indonesia's ending stocks expected to dip by 1% to 4.7 million tonnes, as per data given by Paul.

Indonesia's export competitiveness will face pressure if the crude palm oil export levy rises from 7.5% to 10%. Coupled with existing export taxes, this increase makes Indonesian crude palm oil, which is already priced at a premium of $146.30 per tonne over Malaysian palm oil, less palatable to consumers, according to Paul.

"Indonesia palm oil prices used to be at a discount to Malaysia's but the levy and duty may inflate the prices further. A higher biodiesel mandate will definitely reduce export availability from Indonesia, so Malaysia will have to make up the share, but the country does not produce as much palm as Indonesia, so we will have a supply deficit in palm demand if the biodiesel mandate keeps rising," said Sathia Varqa, managing editor at Fastmarkets Palm Oil Analytics in Singapore.

As Indonesia diverts more palm oil for domestic biodiesel, Malaysia stands ready to capture greater global market share. Even though Malaysian exports are forecast to decline by 4% to 15.9 million tonnes in 2024-25 due to lower output, strong international demand will keep ending stocks low, falling by 3% to 1.9 million tonnes. This positions Malaysia as a key player in balancing global supply, Paul said. End

US$1 = INR 85.84

Edited by Ashish Shirke

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