Indonesia unlikely to back down on B40 biodiesel mandate, helping sustain elevated palm oil prices, says RHB

Indonesia will likely charge ahead with its biodiesel mandate, which will keep palm oil prices elevated this year as supply in the market shrinks, said RHB Research.

The government appears “determined” to roll out its B40 programme that requires a mix of 40% palm oil with 60% diesel, the research house said, following a meeting with the Indonesia Biofuel Producer Association. The mandate is expected to be implemented as soon as this month.

As supply tightens, with Indonesian palm oil exports expected to decline by 7% in 2025, “we believe this will continue to support CPO (crude palm oil) prices at higher levels in 2025,” RHB Research said.

The house kept the plantation sector on a “overweight” call, noting that its average 2025 CPO price per tonne forecast of RM4,300 is “conservative”, considering the year-to-date prices of around RM4,720.

Indonesia’s implementation of B40 is closely watched, as the programme is expected to soak up rising supply from the world’s biggest palm oil producer. Indonesia is collecting levies on palm oil to subsidise producers and bridge the price gap between biodiesel and fossil fuel.

Indonesia is also set to raise a levy on CPO from 7.5% currently to 10%, which RHB Research said is sufficient to subsidise the programme, as long as gas oil stays above US$57 per barrel.

Together with the provision of the subsidy to only the public service obligation segment, the levies will ensure that there would be enough funds to fully sustain B40, even in the light of falling crude oil prices, the house added.