Malaysia, the world’s second-largest producer of palm oil, is reportedly considering increasing the amount of palm oil used in its biofuels, a move that would mirror the policies of top producer Indonesia, according to industry sources, reports The Hindu Businessline.
Currently, Malaysia requires a 10% palm oil blend (B10) for transport fuels and a 20% blend (B20) for industrial use. In contrast, Indonesia has a more aggressive policy, mandating a 40% palm oil blend in its biodiesel.
Malaysia is also actively researching and developing palm-based aviation fuel, known as Sustainable Aviation Fuel (SAF), and advanced biofuels. This strategy aligns with the nation’s climate goals and efforts to diversify its palm oil market. Industry insiders suggest that rising crude oil prices, often triggered by global political tensions, tend to boost interest in biofuels as an alternative energy source. This could lead to increased demand for palm-based biofuels in regions like Southeast Asia, India, and West Asia, spanning both transportation and industrial energy sectors.
The potential for higher biofuel demand alongside existing food security concerns presents a complex challenge for the global community.
Malaysia’s approach is consistent with that of other nations, such as the United States, which has reportedly proposed allowing refineries to blend a record amount of biofuel into gasoline and diesel next year. Brazil also recently decided to raise its biodiesel blend in diesel from 14% to 15%, effective August 1.
However, a cap on edible oil prices has been observed due to weaker immediate demand from major buyers like India, with signs suggesting that India’s soybean oil imports might decrease.
Concerns about a potential oversupply in the market have also emerged due to higher palm oil stockpiles and increased production. On Thursday, palm oil prices closed at 4,020 Malaysian ringgits ($951) per tonne, a dip from last week’s highs that were influenced by tensions between Israel and Iran and a nearly 20% surge in crude oil prices.
While Malaysia’s B20 biodiesel blend is currently in use only in specific areas, the Ministry of Plantation Industries and Commodities noted in February 2025 that significant funding for infrastructure improvements would be needed to expand the B20 program nationwide. The industry is generally hoping for government financial support, but the government currently has no plans to provide it.
Malaysia introduced its National Biodiesel Programme in 2019, making B10 mandatory for the transport sector and B7 for the manufacturing sector in the same year. However, the B20 program has yet to be fully implemented across the country, being limited to areas such as Labuan, Langkawi, and parts of Sarawak in East Malaysia.
Malaysia exports biodiesel primarily to the European Union (which accounts for over 80% of its biodiesel exports), China, and Singapore, according to the Malaysian Biodiesel Association.
While some in the industry are optimistic about the future of biodiesel and partnerships with private companies, others remain cautious due to price instability. Indonesia’s mandatory B40 biodiesel program, for instance, led to tighter global supplies and made palm oil more expensive than competing oils like soybean oil.
As a result, palm oil’s share in India’s total edible oil imports dropped to 43% (from 58% in the previous year) during the first seven months of the 2024-25 oil year. However, Malaysian palm oil industry leaders view this decline as a temporary market trend, influenced by India’s domestic policies supporting oilseed expansion and diversification of edible oil sources.
Malaysian palm oil production is predicted to see a moderate increase in 2025 and 2026, thanks to better weather, replanting with higher-yielding crops, and improved harvesting efficiency through machinery and advanced technology. However, challenges like labor shortages and unpredictable weather patterns, along with slow adoption of new technology, could limit productivity gains.
“We anticipate prices to remain moderately strong into 2026 due to global political tensions affecting edible oil supply chains, fluctuating prices of rival oilseeds like soybean oil and sunflower oil, currency movements, and biofuel mandates,” the source stated. “However, uncertainties in demand from major importing countries might cause short-term price swings.” Palm oil production is particularly sensitive to weather and labor availability, which can lead to more frequent price changes.
