Palm oil prices set to rise as Indonesia tightens land seizure rules and expands biodiesel mandate

Palm oil prices are expected to rise in the coming months due to uncertainty sparked by Indonesia’s stricter land seizure policies and plans to expand biodiesel production, Reuters reports. Industry analysts warn that the combination of regulatory pressure and higher domestic demand could significantly reduce export availability.

Indonesia’s President Prabowo Subianto has tightened oversight of the palm oil sector, introducing controls over roughly five million hectares of plantations and seizing around 3.7 million hectares for regulatory violations. Analysts say such measures may negatively affect productivity, though opinions about the scale of the impact differ.

At a palm oil industry conference in Bali, Thomas Mielke, executive director of Germany-based Oil World, predicted that Malaysia’s benchmark palm oil contract could climb to 5,000 ringgit (USD 1,183.71) per tonne within the next six months. On the same panel, Dorab Mistry of India’s Godrej International suggested futures could even reach 5,500 ringgit per tonne between January and March if land seizures continue and Indonesia implements its B50 biodiesel mandate. On Friday, the benchmark contract closed at RM 4,125.

Analysts also caution that land seizures may limit investment in fertilizers and soil management. Mistry expects productivity to begin declining within two to three months, although he still foresees higher production in Indonesia for the 2025/26 season. Mielke, however, forecasts output to start dropping from mid-2026 due to compounded pressures, such as aging trees and slow replanting efforts.

Mielke predicts Indonesia’s palm oil output will fall from 49.4 million tonnes this year to 49 million tonnes in 2026, with further declines in 2027. Indonesia’s Palm Oil Association (Gapki) offers a more optimistic view, expecting production to grow by 3–4% in 2026 thanks to favourable weather and new plantings. Still, its representative Fadhil Hasan admitted concerns over land seizures and stressed the need for a “balanced approach” to minimise disruptions.

A key bullish factor for prices is Indonesia’s plan to raise mandatory biodiesel blending to B50 in the second half of next year. Mielke estimates that meeting the B50 mandate will require an additional 2.2 million tonnes of palm oil, further tightening export supplies. Gapki is evaluating multiple policy scenarios and their implications for domestic consumption and export levies. Analysts, including Julian McGill of Glenauk Economics, expect export duties to rise—potentially up to 7.5%—due to the widening price gap between palm oil and diesel.

Tags: Indonesia, prices, palm oil