InfoSAWIT, JAKARTA – Indonesia's biodiesel policy has evolved into one of the most influential factors shaping global palm oil prices, according to industry observers, as increasing domestic consumption continues to tighten export supplies and provide structural support to the market.
Fadhil Hasan, Head of International Affairs at the Indonesian Palm Oil Association (GAPKI), said the country's biodiesel program has become a major price anchor for crude palm oil (CPO), reflecting Indonesia's position as the world's largest palm oil producer.
As blending mandates gradually move from B40 toward higher targets such as B45 and eventually B50, larger volumes of crude palm oil are expected to be diverted from export markets into domestic energy consumption.
Although the government has maintained the mandatory blending level at B40 this year, expectations surrounding future increases continue to influence market sentiment.
According to Fadhil, stronger domestic demand means that even if production expands, exportable supplies may not increase proportionally, creating long-term support for international palm oil prices.
"Biodiesel mandates directly redirect palm oil from export channels to domestic energy use, significantly affecting global inventories and establishing a stronger floor price for CPO," he explained.
Supply Growth Faces Structural Constraints
Despite expectations for higher production, several factors continue to limit supply growth.
Weather remains the most sensitive variable. A La Niña pattern, for example, could increase rainfall and disrupt harvesting activities while affecting plantation productivity.
Malaysia continues to face structural challenges, including aging oil palm trees, replanting requirements, and labor shortages that constrain production growth. In Indonesia, land governance reforms, stricter plantation oversight, and evolving domestic policies may also influence production trends.
As a result, global palm oil supply is expected to grow only moderately, while rising domestic biodiesel consumption provides additional market support.
Prices Expected to Stay Firm in 2026
Historically, average palm oil prices during 2025 stood at approximately RM4,285 per metric ton on Bursa Malaysia Derivatives, slightly below the RM4,372 average recorded in 2024. Indonesia's KPBN reference prices also eased modestly during the same period.
Between September 2024 and March 2025, palm oil briefly traded at a premium to other vegetable oils, particularly soybean oil. That premium, however, faded during the second quarter of 2025 as prices corrected and became more competitive against soybean, rapeseed, and sunflower oils.
Fadhil believes this reflects palm oil's return to its traditional market position—not necessarily the cheapest vegetable oil, but still among the most economically efficient.
Looking ahead to 2026, CPO prices are expected to remain relatively high, although below the average levels recorded in 2025.
During the first half of the year, prices are projected to trade between RM4,100 and RM4,400 per metric ton, supported by seasonally lower production, inventory adjustments, and sustained biodiesel demand.
In the second half, prices are forecast to moderate slightly to around RM4,000–RM4,300 per metric ton as seasonal harvesting increases and competition from other vegetable oils intensifies.
Even so, Indonesia's expanding biodiesel program is expected to remain a key structural factor underpinning global palm oil prices in the years ahead. (T2)
Read the full story in InfoSAWIT Magazine, May 2026 Edition.
