JAKARTA/KUALA LUMPUR (Reuters): Implementation of higher biodiesel mandates in Indonesia, the world's biggest palm oil producer, is likely to tighten supplies of the vegetable oil, a leading industry analyst said on Tuesday.
Indonesia currently has a mandatory 35% blend of palm oil-based fuel in biodiesel and is seeking to ramp up to biodiesel containing 40% palm oil to cut its energy imports.
The plan, if implemented, could see biodiesel consumption rise to 16 million kilolitres next year.
The move would involve the additional use of 1.5 to 1.7 million metric tons of palm oil, leading to lower export volumes, Oil World senior analyst David Mielke told a palm oil conference in Kuala Lumpur.
"In a situation where we don't have enough oil, Indonesia increasing the mandate by 5% would make overall supply tight," he told Reuters on the sidelines of the event.
"So for the consumer worldwide, it would be catastrophic because there would be even less oil available."
B40 will boost Indonesia's palm oil use for biodiesel to 13.9 million metric tons from the estimated 11 million tons needed this year, with B35, Indonesia's biofuel producers association APROBI has estimated.
In recent years, global palm oil supplies have been affected by lower output in the world's two biggest exporters, Indonesia and Malaysia, due to a pandemic-induced severe labour shortage, lower application of costly fertilisers, and persistent rainy weather conditions.
Palm oil production is expected to increase by 2.3 million metric tons in 2024/25 compared to the previous season, Mielke said, with the price of rival soybean oil expected to rise at a premium over palm oil at the latest by June next year.
Glenauk Economics managing director Julian McGill told the event palm oil will likely trade at around 4,000 ringgit ($933.49) per metric ton in 2025.
Malaysia's benchmark crude palm oil futures are currently trading at a six-month high. Prices have traded at an average of 3,976.50 ringgit a ton so far this year.
The country's palm oil production is estimated to come in at 19.4 million tons in 2024, compared to 18.55 million tons in 2023, McGill said.
Output in Indonesia, meanwhile, was likely to be 1 million tons lower than the 54.84 million ton produced in 2023, he said.
(Reporting by Danial Azhar and Ashley Tang; Editing by Martin Petty and Tasim Zahid) - Reuters
