Kuala Lumpur: Indonesia is pushing forward with its ambitious biodiesel mandate, a move that is expected to keep palm oil prices elevated this year as supply tightens, according to RHB Research, reported The Edge Malaysia.
The Indonesian government is reportedly “determined” to roll out its B40 program, which requires a 40% blend of palm oil with 60% diesel. Following discussions with the Indonesia Biofuel Producer Association, RHB Research noted that the mandate could take effect as early as this month.
With palm oil exports from Indonesia projected to drop by 7% in 2025, the tightening supply is expected to support crude palm oil (CPO) prices. “We expect CPO prices to remain strong in 2025,” RHB Research stated.
The research house maintained an “overweight” stance on the plantation sector and described its 2025 average CPO price forecast of RM4,300 per tonne as “conservative,” given that prices have averaged RM4,720 per tonne so far this year.
The implementation of B40 is being closely watched, as it is expected to absorb increasing palm oil supply from the world’s top producer. Indonesia is using palm oil levies to subsidize biodiesel producers and offset the price difference between biodiesel and fossil fuels.
Additionally, Indonesia plans to raise its crude palm oil levy from 7.5% to 10%, a move RHB Research believes will adequately support the subsidy program, provided that gas oil prices remain above $57 per barrel.
Even with falling crude oil prices, the combination of higher levies and subsidies targeted at public service obligation sectors is expected to ensure sufficient funding for the full implementation of B40.
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