Indonesia plans to raise palm oil content in biodiesel from 35% to 40%, starting January 1, 2025. The move is expected to increase domestic demand for palm oil, tighten global supplies, and push prices higher.
Market analysts predict that crude palm oil (CPO) futures may exceed 5,000 ringgit per metric ton ($1,130) by early 2025. Prices could rise by 10% to 15% in early 2024 if the policy is implemented as scheduled.
The government has set a biodiesel allocation target of 15.62 million kiloliters for 2025, compared to 13.4 million kiloliters under the current B35 program. Energy-related palm oil consumption is projected to rise to 13.9 million metric tons (MMT), up from 11 MMT under B35.
However, Indonesia’s palm oil exports have already dropped by 10% in November 2024, and further declines are expected as preparations for the B40 program continue. Slower production growth has also raised concerns about whether supply can keep up with increasing demand.
Full implementation of the B40 program is delayed until 2026 given that the supplies of CPO are tight, that subsidy funding would be challenging to manage, and restructuring the export levies needs to be done.
The plan would reduce carbon dioxide emissions by as much as 40 million metric tons a year. However, the increasing demand could push deforestation since it could lead to cutting off as much as 1.5 million hectares of forest cover by 2039, environmental watchdogs warned.
It would be gradual, with B40 implementation reshaping the global palm oil markets, and ripples that should be felt on the price level and the supply chains.
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