Biodiesel production to decline in 2025 due to declining profitability – Milke

Global production of biodiesel and hydrotreated vegetable oil (HVO) is expected to decline this year as profitability has declined significantly, according to industry analyst Thomas Milke.

Milke said prices of feedstocks such as palm oil, soybean oil and rapeseed oil are rising faster than diesel prices. The price gap between feedstock and diesel became “unusually large” between September and December 2024, he said.

Higher feedstock prices, in turn, have reduced the profitability of biodiesel production.

Mielke, editor and CEO of ISTA Mielke GmbH (Oil World, Germany), said the price gap will be a key swing factor that is likely to reduce the use and production of biodiesel and HVO in many countries.

“Look at the annual growth rate of biodiesel and HVO production worldwide. On average, we expect growth of about four million tons per year. However, at the moment we expect a decline of 0.5 million tons,” he told the audience at the Palm and Laurin Oils Price Forecast Conference and Exhibition organized by Bursa Malaysia.

Milke does not believe Indonesia is capable of meeting its B40 biodiesel mandate. “Despite all the claims, I don’t think so. But the extent to which Indonesia will push to meet the mandate to 40% will have a big impact on palm oil and other oils and fats prices in the coming months.

“The Brazilian government has also suspended a 1% increase (from 14 to 15 baht) planned for March to prevent further domestic price increases,” Milke said.

Milke said that if governments are concerned about food price inflation, they may see lowering biodiesel requirements as a relatively easy way to keep domestic prices under control and prevent consumer protests.

Indonesia, the world’s largest palm oil producer, expects its B40 biodiesel program, aimed at reducing reliance on imported diesel, to reach full implementation next month after delays earlier this year due to regulatory concerns. In contrast, Malaysia’s B20 biodiesel mandate has faced significant setbacks, with officials citing infrastructure constraints as a key obstacle to increasing palm oil blending in biodiesel.

Commenting on the price differential between palm oil compared to soybean oil, Milke said the existing differential is expected to narrow over the next one to three months as high prices have reduced demand in key consumption markets such as India.

Palm oil has traded more expensive than other vegetable oils in recent months due to supply disruptions in Indonesia and Malaysia caused by floods. In addition, Indonesia’s efforts to increase production of biodiesel using palm oil have resulted in reduced supplies. As a result, major buyers, including India, have switched to soybean and sunflower oils, resulting in lower demand for palm oil.

“We have seen significant fluctuations in palm oil prices over the past four years, from US$530 in May 2020 to US$1,900 in March 2022. Going forward, we expect palm oil prices to fluctuate between US$900 and US$1,100, but the premium over soybean oil is likely to narrow in the coming months,” Milke said.

Tags: soybean oil, prices, palm oil, rapeseed oil