Biodiesel to drive 2025 palm oil prices: IPOC

Spanish Market: Agriculture, Biofuels, Chemicals
08/11/24

Palm oil prices are likely to be supported by tight supplies in 2025, as Indonesia is slated to begin a 40pc biodiesel blending mandate (B40) and crude palm oil (CPO) production growth is slowing, market experts said at the 20th Indonesian Palm Oil Conference and 2025 Price Outlook (IPOC 2024) in Nusa Dua, Bali.

Higher blending mandates and tighter supplies may keep CPO futures above 5,000 ringgit/t ($1,130/t) during the first half of 2025, as could firmer lunar new year and Ramzan demand between January-March, Godrej International director Dorab Mistry said.

Indonesia plans to implement B40 in 2025, according to its minister of bioenergy Edi Wibowo, before moving to B50 before 2030. If Indonesia enforces B40 as planned, palm oil prices may rally an additional 10-15pc over current prices in the first quarter of 2024, Oil World analyst Thomas Mielke said.

But industry experts were sceptical that Indonesia's B40 will materialise, citing current tight supply of CPO and a relatively wide palm oil-gas oil (POGO) spread, which would exert more pressure on government subsidies. Indonesia subsidises biodiesel producers for the difference between gasoil and biodiesel production cost, using funds accrued from export levies on palm oil products.

With crude oil prices possibly constrained, higher subsidies will be required to fill the gap, according to consultancy Transgraph's Nagaraj Meda. Subsidies of $5.6bn, $4.76bn, and $3.53bn will be required should Ice Brent crude prices hit $68.50/bl, $75/bl, and $85/bl respectively under B40, Meda said. Under the current B35 programme, biodiesel subsidies have cost the Indonesian government $2.56bn so far in 2024. The export levy structure — which was adjusted in October — is insufficient to fund a B40 programme.

"The export levy and tax structure will need revision urgently", Mistry said.

Soy soars

Palm oil output will grow moderately in 2024-25, while production of rival soybean oil will be higher, the conference heard.

Mielke expects palm oil production to increase by 2.3mn t, and soybean oil production to rise by 3.3-3.5mn t. Sunflower and rapeseed oil production will fall by 3.8mn t in 2024-25, he forecasts.

Glenauk Economics director Julian McGill said high palm oil prices will drive US biofuels demand towards soybean oil, driving some correction in palm oil prices.

Elevated CPO prices are making palm oil mill effluent (Pome) and used cooking oil (UCO) uncompetitive in the EU and US as biofuels feedstocks, reducing demand, he said. Palm oil prices are now well above those for waste oils, which tends to tighten supplies of UCO in southeast Asia as there is less incentive for restaurants and factories to sell their oil. Assuming gasoil prices do not increase, McGill said fundamentals are not enough to support current palm oil prices. He sees the fob Indonesia price returning to $1,000/t before the end of 2024, but said CPO futures on the Bursa Malaysia exchange will remain between $950-1,050/t due to lower stocks following firm exports during 2024.

Coconut falls

In the lauric oil markets, Mistry is projecting an increase in prices during the 2024-25 period as he expects coconut oil (CNO) production to decrease.

He forecasts CNO prices to continue on an upward trend until the second half of 2025, ranging between $1,800–2000/t cif Rotterdam until June. Crude palm kernel oil prices are expected to follow CNO during the same period, Mistry said.

By Deborah Sun and Carolina Palma

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20/12/24

Viewpoint: EU, UK mandates will drive global SAF demand

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Trump backs new deal to avoid shutdown: Update

19/12/24

Trump backs new deal to avoid shutdown: Update

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US Congress passes waterways bill

19/12/24

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USDA awards more funding to increase fertilizer output

19/12/24

USDA awards more funding to increase fertilizer output

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Indonesia’s Pertamina seeks UCO for SAF output

19/12/24

Indonesia’s Pertamina seeks UCO for SAF output

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