Indonesia’s Biodiesel Push: A Game-Changer for Malaysia’s Palm Oil Market

Published 07-01-2025, 06:04 pm

Indonesia, the world’s largest exporter of palm oil, is advancing its biodiesel program by increasing the blending ratio of palm-based biofuel with diesel to 40% (B40) in 2025, with plans to achieve a 50% blend (B50) by 2026. These measures align with Indonesia's goals to achieve energy self-sufficiency and eliminate diesel imports by 2026. However, they are poised to reshape global palm oil trade significantly.

1. Higher Domestic Consumption and Reduced Exports The B40 mandate will require 15.6 million kiloliters of palm oil for biodiesel production in 2025, substantially boosting Indonesia's domestic consumption. As a result, Indonesia’s domestic consumption is projected to rise by 6% to 22.3 million tonnes in 2024-25, up from 21.1 million tonnes the previous year. Consequently, Indonesia’s exports are expected to grow by only 9% to 24.2 million tonnes, despite an 8% increase in production to 46.5 million tonnes. This modest export growth reflects tightening global supplies, with Indonesia's ending stocks forecast to decline by 1% to 4.7 million tonnes.

2. Rising Export Levy and Cost Competitiveness
Indonesia’s crude palm oil (CPO) export levy is set to increase from 7.5% to 10%, adding to the burden of its existing export taxes. This move will make Indonesian CPO—already priced at a $146.30 per tonne premium over Malaysian palm oil—even less competitive in international markets. Combined with global CPO production projected to increase by 4% to 79.6 million tonnes in 2024-25, Malaysia stands to benefit from this cost differential.

3. Malaysia's Advantage
As Indonesia diverts more palm oil for biodiesel, Malaysia is poised to capitalize on growing global demand. Despite a slight 2% drop in production to 19.3 million tonnes in 2024-25, Malaysia’s relatively lower costs and smaller export levies make it an attractive alternative for international buyers. Malaysia’s exports, although projected to decline by 4% to 15.9 million tonnes, remain crucial in balancing global supply. Ending stocks in Malaysia are expected to fall by 3% to 1.9 million tonnes, signaling strong export demand.

4. Market Reactions and Challenges
Global palm oil exports are forecast to grow by 4% to 46.6 million tonnes in 2024-25. However, this growth comes amid rising domestic consumption, especially in Indonesia, where total supply is set to rise by 7% to 51.3 million tonnes. Concerns over the adequacy of Indonesia’s biodiesel subsidy fund and infrastructure readiness have delayed B40 implementation, creating opportunities for Malaysia to maintain or expand its market share.

5. Collaborative Support and Strategic Positioning
While Indonesia aggressively pursues its biodiesel mandate, Malaysia remains at a biodiesel blend of B10, allowing it to prioritize exports. Malaysia’s palm oil stock-to-use ratio, at 10%, is more favorable compared to Indonesia's declining ratio of 10% in 2024-25, reflecting a more export-oriented approach. Malaysia has expressed support for Indonesia’s biodiesel efforts, recognizing their potential to stabilize global palm oil prices by curbing oversupply.

Conclusion
Indonesia’s ambitious biodiesel policies mark a turning point in the global palm oil trade. By prioritizing domestic energy security, Indonesia is poised to reduce its exportable supplies, creating opportunities for Malaysia to emerge as a stronger player in the global market. With competitive pricing and a strategic export focus, Malaysia is well-positioned to fill the supply gap, attract global buyers, and sustain its palm oil industry’s growth. As the world navigates evolving trade dynamics, the shift in palm oil demand from Indonesia to Malaysia underscores the broader impacts of energy transitions on agricultural markets.

Disclaimer: The views expressed in this article are solely those of the author, who has spent over a decade analyzing the grains and oilseeds markets. With a deep understanding of global agricultural market dynamics, the author offers insights based on extensive experience in trade analysis and market trends. While every effort has been made to ensure the accuracy of the information presented, the views shared are subjective and reflect the author’s perspective on the topic.

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