Palm oil prices are expected to witness a global rise amid rising demand and Indonesia’s palm oil supply concerns

The shift to B40 palm oil biodiesel mandate from the present B35 blend is expected to substantially raise domestic demand for palm oil, diverting a considerable portion of production away from exports. Projections indicate that palm oil consumption for biodiesel could surge to approximately 14 million tons as a result of this mandate, up from around 10.65 million tons in 2023 due to the previous B35 policy. This increased demand raises concerns about the availability of palm oil for cooking oil and other uses, potentially affecting global vegetable oil markets since Indonesia is the largest producer and exporter of palm oil.  (Indonesia had set to implement a significant increase in its biodiesel blending mandate, transitioning from a 35% blend (B35) to a 40% blend (B40) of palm oil-based biodiesel with diesel by January 1, 2025. This policy aims to enhance domestic energy independence and reduce reliance on imported fossil fuels while simultaneously boosting the local palm oil industry, which is crucial for the Indonesian economy.)

To manage this heightened domestic consumption while ensuring sufficient supply for both the cooking oil industry and biodiesel production, the Indonesian government has tightened export controls on used cooking oil (UCO) and palm oil residue. Exporters are now required to obtain government approval for shipments of these products, aiming to prevent shortages and support the successful implementation of the B40 mandate.

Government Support and Economic Implications

The Indonesian government is backing this transition through subsidies for biodiesel production aimed at public services. This financial support is critical as it seeks to stabilize prices in the domestic market while encouraging local production. The government's strategy not only focuses on energy sustainability but also aims to enhance the economic viability of the palm oil sector, which has faced challenges due to fluctuating global prices and increasing domestic consumption demands.

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Furthermore, President Prabowo Subianto has ambitious plans for future increases in biodiesel blends, with targets set for B50 by 2026.