What Happened?
Indonesia, the world's largest palm oil producer with about 57% of global output, formally launched its B40 mandatory biodiesel blending program in January 2025. The program requires 40% palm oil-based biodiesel to be blended into all diesel sold domestically, up from the previous B35 mandate.
Market Impact
Additional domestic palm oil absorption from B40 is estimated at 1.8–2.2 million MT per year relative to B35, significantly reducing Indonesia's export availability. Combined with expected lower production in Sumatra and Kalimantan due to El Niño-related drought, this has tightened the structural balance considerably.
Price Reaction
- Crude Palm Oil (CPO), Bursa Malaysia
- MYR 4,100–4,350/MT (about USD 890–950/MT), representing a 22% year-on-year increase
- RBD Palm Olein (primary food grade)
- CIF China USD 950–980/MT
Implications for Food Manufacturers
Food manufacturers that use palm oil as a raw material face significantly higher input costs. Substitution with sunflower oil or canola has partly begun, particularly in Europe; however, palm oil's unique physical properties make full substitution difficult for many applications.
Sourcing Strategy
Buyers are advised to diversify palm oil sourcing by including Malaysian origin (which has different domestic mandates) and to lock in Q3–Q4 volumes at current market levels. My Trade Global maintains active supply relationships in both Indonesian and Malaysian origin.