PETALING JAYA: Malaysia’s move to raise its biodiesel blending mandate from B10 to B15, starting with an initial rollout of B12 blend, can likely be supportive of crude palm oil (CPO) price structurally as export availability is reduced.
The decision forms part of a broader strategy by the government to extend domestic diesel supply and reduce reliance on fossil fuels.
The government has outlined a biofuel plan under the 13th Malaysia Plan, including phased depot upgrades to support higher blends of up to B20 and B30, alongside plans to introduce a B30 mandate for the commercial and public transport sectors.
The move is also a sign that the global vegetable oil market is currently navigating a period of structural transformation, where biofuel mandates have shifted from marginal influences to core pillars of demand.
The conflict in the Middle East and resulting higher energy prices, industry insiders say, highlight a complex landscape where the palm oil based biodiesel sector, particularly in Indonesia, faces a delicate balance between energy independence goals and the realities of production constraints and price volatility.
The Iran war, in Indonesia’s case, which is the world’s largest palm oil producer, has fundamentally changed its market structure by prioritising domestic biofuel consumption with its proposed B50 blend from the second half of 2026 onwards over exports.
For Malaysia, the new proposed incremental jump from B10 to B12 could absorb an additional 130,000 tonnes of biodiesel per year.
Expanding further from B12 to B15 would boost consumption by some 204,000 tonnes per year, according to the Malaysian Palm OIl Board’s (MPOB) director-general Datuk Dr Ahmad Parveez Ghulam Kadir.
“The government’s measured approach, starting with B12 without incurring additional fiscal cost and using existing blending infrastructure is highly strategic.
“Furthermore, with crude oil prices currently exceeding the price of CPO, this policy is financially feasible. Overall, the mandate benefits the country by reducing reliance on fossil fuel imports, stabilising CPO prices and support for the domestic downstream industry,” he told StarBiz.
Reports show Malaysia’s B10 blend biodiesel production hit 975,207 tonnes in 2025, which is below its installed maximum production capacity of 2.5 million tonnes.
The B12 blend rate should take local biodiesel production level to around 1.5 million tonnes annually while a B20 mandate could take production to 2.4 mil tonnes of biodiesel.
The B12 mandate could take up an additional 600,000–800,000 tonnes of CPO annually which is meaningful, but not transformational when compared to the annual 20 million tonnes of CPO the country now produces. B15 should absorb around 1.8 mil tonnes CPO in total or about 9% of total annual CPO output.
With CPO stock levels averaging at two million tonnes, the higher blend mandates would, on paper, be price supportive structurally as export availability is reduced.
Price action on Bursa Malaysia Derivatives however was muted to the announcement, after the strong price rally in CPO futures contract prices since early March after the war began.
While crude oil prices are in backwardation due to the supply shock, CPO prices remain in contango due to ample availability of edible oils on the market and despite the move by Indonesia to raise its biodiesel mandate.
The jump in spot month crude oil price is partly why diesel prices in Peninsular Malaysia have surged from RM2.99/litre in February to RM6.72/litre as of April 9, leading to calls for higher biodiesel adoption as a cost-mitigation and energy security measure.
How biodiesel producers in the country respond to the higher blend proposal is hard to predict.
“Financial feasibility remains the key constraint. The economics of biodiesel blending are driven primarily by the price spread between crude oil and CPO, rather than policy alone.
“When CPO trades at a premium to gasoil, blending becomes dependent on subsidies. This has historically delayed the implementation of higher mandates — for example, the rollout of B20 faced hesitations due to cost pressures and infrastructure readiness.”
“While elevated energy prices can improve the viability of biodiesel, subsidies may still be required to sustain higher blending levels.
“In this context, domestic demand is likely to remain the primary driver, with exports providing only a secondary upside. “Ultimately, while biodiesel expansion is technically feasible, its economic sustainability remains conditional on the crude oil–CPO price relationship,” said MR Chandran, chairman at IRGA Sdn Bhd, an agritechnology company.
While rising crude oil prices have improved the economics of biodiesel, if CPO prices remain structurally strong, government support or cross-subsidy mechanisms may still be necessary.
It is also important to note that Indonesia’s biodiesel programme is both large-scale and heavily subsidy-backed, absorbing significant volumes of palm oil.
A critical factor limiting biodiesel growth is the unfavourable price spread between vegetable oils and fossil fuels. Prior to the conflict, fossil diesel remained too cheap relative to palm or soy-based biodiesel, necessitating massive subsidies to make mandates viable
In India, for instance, the biodiesel industry, which relies on palm fatty acid distillate, completely stalled in 2025 because the feedstock became too expensive compared to fossil diesel.
This spread also impacts the fulfillment of existing mandates. Indonesia failed to fully reach its B40 targets in the previous year due to high premiums of palm oil over gas oil.
However, higher blending mandates will naturally tighten global palm oil supply. While this supports CPO prices structurally, it also reduces export availability, and could potentially push buyers toward alternative vegoils such as soyoil, rapeseed and sunflower oils.
Parveez clarified that Malaysia’s biodiesel production is primarily to meet domestic mandate with data showing about 15% of the biodiesel is exported. Any further expansion in exports would depend on favourable price differentials; i.e. diesel versus biodiesel, and compliance with sustainability certification standards.
‘As such, exports are expected to remain opportunistic, with domestic utilization remaining the priority,” he explained
Parveez clarified that Indonesia’s move towards B50 represents a structural shift with global market implications, as it will divert a significant volume of palm oil into domestic energy consumption, thereby tightening global supply and reducing export availability.
From Malaysia’s perspective, given that more than 85% of Malaysian palm oil is exported, the gradual transition from B10 to B12 and subsequently B15 is more measured and market-sensitive, balancing domestic consumption with export commitments.
“Indonesia’s B50 is likely to be price-supportive for the global edible oils market, while Malaysia’s approach helps ensure supply reliability and price stability,” he said.
What’s clear is biofuels are no longer a secondary market; it is now a strategic instrument designed to reduce export dependency, stabilise prices, and achieve lower fossil fuel imports and ensure energy independence.
Ultimately, the biodiesel market over the next couple of years will be defined by policy risk rather than just price cycles. While mandates provide a “floor” for demand, their success depends on a fragile equilibrium of production growth, government financing, and global energy prices.
