The European oleochemical market will have insufficient palm kernel oil (PKO) supply under the EU Deforestation Regulation (EUDR), delegates heard today at the 20th Indonesian Palm Oil Conference and 2025 Price Outlook (IPOC 2024) in Nusa Dua, Bali.
The cost of compliance with the EUDR will tighten PKO supply for EU markets as fewer palm oil producers are expected to comply with the regulation, further increasing prices into the EU bloc, according to Glenauk Economics managing director Julian McGill.
Additionally, an excessive investment in fatty alcohols production in Indonesia will limit the country's exports, further tightening global supply, according to McGill. Indonesia currently consumes 70pc of its PKO production, McGill said.
The EUDR requires mandatory due diligence from operators and trading firms selling and importing palm oil and its derivatives into the EU bloc, including PKO. Firms must ensure that products sold in the EU have not contributed to deforestation or forest degradation.
Although the regulation is originally expected to take effect from 1 January 2025, the European Commission recently proposed an extra 12 months "phasing-in time" for implementation, which will be voted on by the EU parliament, probably on 14 November.
But "the problem with the EUDR will not be solved by postponing the regulation, as European demand for PKO will remain excessive compared to that for palm oil," Julian McGill said during the conference. To fulfil European demand for PKO, producers will have to generate more EUDR compliant palm oil than actually needed, according to McGill.
The average yield of PKO from fresh palm oil fruit bunches is 2-5pc.
McGill also highlighted that another important problem to be solved for the EUDR to be correctly implemented is the complexity of traceability requirements for palm and palm kernel oil, because they are liquid goods, unlike wood, coffee and cocoa beans.
