Indonesia Mulls Raising Mandatory Palm Oil Mix in Biodiesel to 35%

by Bernadette Christina Munthe (Reuters/NASDAQ) Indonesia is considering expanding a mandatory palm oil mix in its biodiesel to 35%, from 30%, a government official said on Thursday (June 30, 2022), as authorities look for ways to stimulate palm fruit purchases from farmers after a slowdown in exports.

Palm oil inventories ballooned after Indonesia stopped exports of crude palm oil and some other derivatives for three weeks to May 23 in a bid to contain soaring domestic cooking oil prices.

The government has sought to accelerate shipments since by issuing export permits for 1.96 million tonnes of palm oil products as of Wednesday since the lifting of the ban.

However, shipments have been slow as companies complained of difficulties in finding cargo vessels. Despite this, potential additional supply from Indonesia has pressured palm oil futures POI/.

Farmers have been lobbying the government to remove export restrictions to encourage shipments, as palm fruit prices remain low and mills limit purchases.

Indonesia's 30% mandatory palm oil blend in its biodiesel, known as B30, is already the highest in the world.

The government has ambitions to raise it further to 40%, but this plan has been delayed due to high palm oil prices. It has said it would conduct road test for the so-called B40 this year. READ MORE

Excerpt from Jakarta Post: Workers transport oil palm fruits onto trucks from PT Wanasawit Subur Lestari's plantation in Pangkalan Bun, Central Kalimantan, Saturday (12/19/2015). The Indonesian Palm Oil Board (DMSI) estimates that crude palm oil (CPO) and crude palm kernel oil (CPKO) production this year will miss the initial projection of 30.1 million tons of CPO and 3.1 million this year. CPKO tons fell from the initial target of CPO 31.5 million tons and CPKO 3.3 million tons because it was caused by the El Nino phenomenon which caused a prolonged dry season.

The reversal of crude palm oil (CPO) prices to below US$900 per ton and its repercussions in the domestic market have forced the government to take yet another drastic measure to help the commodity by advancing the B35 biodiesel mandatory program later this month. The policy is expected to reduce the mounting local CPO inventories but not really help the government’s effort to bring down cooking oil prices.

CPO prices continued to plunge in recent weeks as a result of a major surplus in CPO inventories, following Indonesia’s anti-market policies of requiring a domestic market obligation (DMO) of CPO to curb cooking oil prices and abrupt decision to ban exports of CPO and its derivative products for three consecutive weeks in April and May. The situation worsened following the difficulties faced by CPO exporters in finding cargo vessels to carry CPO. At the same time, oil palm farmers were entering the harvest period.

Worse, inventories in Malaysia, the world’s second-largest producer after Indonesia, also rose to a new record of 1.66 million tons in June.

Responding to the situation, the government decided to make B35 biodiesel – a mixture of 35 percent CPO and 65 percent diesel fuel – mandatory beginning July 20. Dadan Kusdiana, the director general of new, renewable energy and energy conservation at the Energy and Mineral Resources Ministry, explained that the program would begin on July 20, and it would add demand for biofuel by 727,805 kiloliters to a total of 10.88 million kl this year. Dadan further explained that the mandatory B35 biodiesel program was a stop gap to reaching the actual target of the mandatory B40 biodiesel program, which he expected could be implemented by the end of this year.

The government claimed that the rising usage of domestically grown palm oil for biodiesel not only drove up local demand for CPO but also saved the country from foreign exchange used to import diesel fuel. Last year alone, savings reached Rp 66.5 trillion (US$4.42 billion).

Moreover, the production cost of biodiesel is much lower than imported diesel fuel; Rp 21,000 per liter for imported diesel as opposed to Rp 13,775 for biodiesel.

The mandatory B35 biofuel program, however, will likely have a negative effect on the government’s target of lowering cooking oil prices. Our sources said that CPO companies mostly preferred to supply CPO for biofuel production rather than for cooking oil because the former has a mechanism in place to compensate CPO producers for price differences but not the latter. Moreover, the government’s flip-flopping in cooking oil policies has mostly penalized CPO producers.

He (a top-tiered source among palm oil industrialists) suggested the only way to solve the palm oil conundrum is by enacting a set of measures to ease CPO exports. The first step is to lift the DMO and DPO policies; the next, to reduce the export levies. READ MORE