INDONESIA’S B50 BIODIESEL MANDATE SEEN STRENGTHENING MALAYSIA’S PALM OIL COMPETITIVENESS

By Danni Haizal Danial Donald

KUALA LUMPUR, Jan 12 (Bernama) -- Indonesia’s move to implement its B50 biodiesel mandate is expected to enhance Malaysia’s competitiveness in the global palm oil market, says an economist.

Universiti Kebangsaan Malaysia economics associate professor Dr Norlin Khalid said the policy could position Malaysia as a preferred alternative for exporters and buyers through favourable pricing, reliable supply, and consistent product quality.

Norlin said the policy shift would make Indonesian palm oil less competitive due to higher export levies and tighter export availability, making Malaysia an alternative and reliable source of supply.

“As the world’s largest palm oil producer, Indonesia’s decision to raise export levies to finance its biodiesel mandate is expected to influence global palm oil supply dynamics, as a significant share of palm oil production is being absorbed by the domestic biodiesel programme, thereby reducing export availability.

“In this context, higher export costs and stronger domestic absorption of palm oil in Indonesia can create opportunities for Malaysia’s palm oil industry, particularly in price-sensitive and supply security-driven markets such as India, China, Africa, and the Middle East,” she told Bernama.

On Jan 8, 2025, news media reported that Indonesia was likely to increase its palm oil export levy to support the country's biodiesel mandate. News reports said the country has implemented a mandatory 40 per cent palm-based biodiesel blend, known as B40, the highest blending rate in the world, and seeks to increase the blend to 50 per cent (B50) later this year, with a ministerial-level meeting anticipated to be held this week to discuss the matter.

According to Norlin, the policy shift is expected to contribute to firmer prices and reinforce Malaysia’s exposure to Indonesia-driven supply shocks, providing a supportive price environment, as tighter global supply conditions tend to strengthen crude palm oil (CPO) price levels.

“Even if Malaysia’s palm oil production growth remains stable, the industry benefits from positive price transmission effects. In particular, Indonesia’s biodiesel policy, which drives higher domestic demand, tends to support higher benchmark prices, with the impact reflected in Bursa Malaysia Derivatives (BMD) CPO futures,” she said.

Overall, Norlin said Malaysia is well-positioned to strengthen its role in global palm oil supply by meeting additional demand in key export markets, while contributing to overall market stability.

On a broader perspective, she said that if Indonesia successfully implements a B50 biodiesel mandate, the implications would extend beyond the palm oil market, as it is expected to lock in strong domestic demand for palm oil, limit export volume, and make global markets more responsive to policy changes.

This is likely to result in firmer average prices but also higher price volatility, as markets respond to changes in biodiesel allocation, levy adjustments, and feedstock availability, she added.

“From a broader vegetable oil market perspective, a tighter global palm oil supply would strengthen linkages with other major vegetable oils through substitution effects. From an economic standpoint, B50 would mark a shift toward a more energy-linked agricultural commodity system, where biofuel policies become a key determinant of global price stability and cross-commodity spillovers,” she concluded.

-- BERNAMA