Indonesia palm oil output seen recovering in 2025, but biodiesel plan to tighten supply

Indonesia’s palm oil output is forecast to recover in 2025 after an expected drop this year, but prices are expected to remain elevated due to planned expansion of the country’s biodiesel mandate, industry analysts said.

The palm oil benchmark price in Malaysia FCPOc3 has risen more than 35% this year, lifted by sluggish output and Indonesia’s plan to increase the mandatory domestic biodiesel blend to 40% in January from 35% now in an effort to reduce fuel imports.

Palm oil output next year in top producer Indonesia is expected to recover by 1.5 million metric tons compared with an estimated drop of just over a million tons this year, Julian McGill, managing director at Glenauk Economics, told the Indonesia Palm Oil Conference on Friday.

Thomas Mielke, head of Hamburg-based research firm Oil World, said he expects Indonesia’s palm oil production to increase by as much as 2 million tons next year after a 2.5 million ton drop in 2024.

While Indonesia’s output is forecast to improve, supply from elsewhere and of other vegetable oils is seen tightening.

Palm oil output in neighbouring Malaysia is expected to dip slightly next year after increasing by an estimated 1 million tons in 2024.

“We would need a recovery in palm in 2025 because combined exports of soya, sunflower and rapeseed oils are declining,” Mielke said.

The price surge in palm oil in the past seven weeks has been “frightening” for buyers, Mielke said, adding that it would rally by 10%-15% in January-March if Indonesia enforces the so-called B40 policy.

The Indonesia Palm Oil Association said additional feedstock of around 3 million tons will be needed for B40 implementation, eroding export supply.

The current palm oil premium has already caused palm to lose market share against other oils, Mielke added.

Malaysian palm oil prices are seen trading at around $950 to $1,050 per metric ton in 2025, McGill of Glenauk estimated.

Benchmark Malaysian palm oil touched 5,104 ringgit ($1,165.30) on Friday, the highest since mid-2022.

“Sentiment right now is red-hot and extremely bullish, we have to be careful,” said Dorab Mistry, director at Indian consumer goods company Godrej International.

He forecast the Malaysian price around 5,000 ringgit and above until June 2025.

Mielke and Mistry urged Indonesia to consider delaying B40 implementation on concern about its impact on food consumers.

Meanwhile, Mistry expected top palm oil importer India to withdraw its import duty hike imposed from September after elections in the state of Maharashtra in November.

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Tags: price, Indonesia, Malaysia, biodiesel, palm oil, output, import duty