PETALING JAYA: Crude palm oil (CPO) prices will likely be traded higher in 2025 given anticipation of declining exports by world’s largest producer, Indonesia amid its government decision to roll out the B40 biodiesel mandate.
Post a recent meeting with Indonesia Biofuel Producer Association (APROBI), RHB Research in a report said “we believe the Indonesian government is determined to roll out its B40 mandate and does not plan on rolling back to a lower blending rate, even if crude oil prices fall.”
In addition, to ensure there is enough money to subsidise the republic’s B40 mandate, the research house noted more levies will be collected going forward.
The Indonesian government has plans to help fund coconut and copra replanting using the Oil Palm Plantation Fund Management Board (BPDPKS) fund, but noted that producers and exporters of coconut and copra would also need to contribute to the fund via levies, although the levy rate has yet to be decided.
There will also be levies on exports of other products including used cooking oil, palm oil mill effluent (biodiesel) and glycerine by-products.
“This, together with the carry forward funds from 2024 (amount yet to be finalised), will ensure there is enough money to subsidise Indonesia’s B40 mandate,” added RHB Research.
The research house also said Indonesia’s revision of the CPO levy is imminent.
“The CPO levy is reviewed every few months and APROBI noted that the government has agreed to revise the levy to 10% from the current 7.5%, with the new rate taking place soon. This, together with the provision of the subsidy to only the public service obligation segment (7.55 million kilolitres or 48% of usage), will ensure that BPDPKS has enough funds to fully sustain B40, even in the light of falling crude oil prices.
“We estimate that with a 10% levy rate, BPDPKS will have sufficient funds to subsidise B40, provided gas oil prices do not drop below US$57 per barrel, assuming all other factors remain constant,” the research house said.
If the Indonesian government intends to implement B50 in 2026, RHB Research said it will be faced with major hurdles as the existing capacity is not enough to implement B50 and needs to be increased by 15% to 20%, assuming an 80% utilisation.
Also, the existing technology may not be suitable to produce B50 biodiesel and producers will need to install new equipment, which will incur substantial additional investment.
RHB Research noted that a B50 mandate would require an extra four million tonnes of palm oil per annum, , which would pose a food versus fuel challenge – limiting exports required to feed the world.
The research house is positive on the plantation sector and has kept an overweight call with the average 2025 CPO price assumption of RM4,300 per tonne.
Its top picks were unchanged, focusing on the purer planters such as Johor Plantations Group Bhd
, Sarawak Oil Palms Bhd, Bumitama Agri Ltd, Perusahaan Perkebunan London Sumatra Indonesia PT Tbk and SD Guthrie Bhd.
RHB Research added the main downside risks to its outlook include the Russia-Ukraine war being prolonged and exacerbated, significant changes in the crude oil price trend, which may result in changes in biodiesel mandates.
Other risks are weather abnormalities resulting in an oversupply or undersupply of vegetable oils, significant changes in the demand for vegetable oil, worsening labour situation in Malaysia causing production to be affected negatively.
The revision in Indonesia’s tax structure and trade policies and environmental, social and governance issues pinpointed for listed companies, will also pose downside risks.
