Weather risks and expanded biodiesel production will lead to a reduction in global palm oil supply

The SEA states that increased biodiesel production in India’s closest partners and the diversion of more palm oil to domestic energy use will inevitably lead to a reduction in export supplies from producing regions.

Emphasizing that the recent decline in palm oil imports reflects a short-term demand adjustment due to high import prices, the SEA stated that the interaction of geopolitics, weather risks, and expanding biodiesel production necessitates a tighter global palm oil supply balance in the current financial year.

“Overall, the interaction of expanding biodiesel production, weather risks, and geopolitics creates the preconditions for a tighter global palm oil balance in 2026-2027,” SEA Executive Director B.V. Mehta said in a statement.

The association added that geopolitical turmoil around the Strait of Hormuz and evolving trade policies are adding uncertainty to global supply chains. “With Indonesia moving to the B50 standard, Malaysia to the B15, and Thailand to the B20, it is clear that global palm oil trade will become more challenging in the near future!” the statement noted.

Given the Indian Meteorological Department’s forecast for below-normal monsoons and the likelihood of El Niño conditions, the risk of increased import demand in the second half of the year remains significant if this impacts domestic oilseed production, the SEA noted.

In a separate statement, the association noted that given the crucial role of the monsoon in securing the kharif harvest and increasing rural demand, any shortfall could lead to tighter supplies and food inflation. This risk is exacerbated by rising commodity and fuel prices amid ongoing tensions between the US and Iran.

The potential emergence of an El Niño event remains a key concern, potentially reducing monsoon intensity, the association added.

Malaysia’s palm oil-based biodiesel consumption will grow by more than 300,000 metric tons annually, the Malaysian Palm Oil Council announced, as the country joins Indonesia, the largest producer, in raising blending mandates to reduce energy imports.

The Malaysian government announced it will increase its 10% biodiesel mandate, known as B10, to a 15% biodiesel blend, without specifying a timeframe. It will start with a 12% blend, with no additional production costs and using only existing biodiesel plants.

Malaysia, the world’s second-largest palm oil producer, currently has a B10 mandate for the transport sector, although a 20% mandate has been implemented in the federal territory of Labuan, Langkawi, and Sarawak, excluding the city of Bintulu.

The shift from B10 to B12 is expected to increase biodiesel consumption by an additional 130,000 tonnes per year, while the expansion to B15 is estimated to increase consumption by approximately 204,000 tonnes per year, MPOB Director General Ahmad Parvez Ghulam Qadir said in an emailed response on Thursday.

“The new mandate will benefit the national economy by easing dependence on imported fossil fuels, strengthening the price of crude palm oil (CPO), and reducing the burden on diesel users,” he said.

The biodiesel mandate will cover diesel sold at retail stations and other subsidized sectors, said Ahmad Parvez, adding that the government may consider future expansion into the industrial sector, subject to policy decisions aligned with national interests.

The gradual increase in domestic biodiesel consumption is projected to have only a minor impact on palm oil exports, said Ahmad Parvez, as Malaysia’s production capacity remains robust. “Overall export volumes are expected to remain largely stable,” he said.

Malaysia produced 20.28 million tonnes of CPO last year, while palm oil exports fell to 15.27 million tonnes.

Tags: palm oil, biofuel