Indonesia to introduce B35 biofuel mandate from January, supporting vegetable oil prices

Indonesia, which is the world's largest producer of palm oil, has implemented the B30 program since 2020, which involves blending fossil gas oil with 30% biofuel produced from palm oil. The country's Ministry of Energy said that from January 1, 2023, the mandatory proportion of biofuels for blending will be increased to 35% in order to reduce fuel imports amid high global energy prices and switch to clean energy sources. Such a decision will strengthen the demand for palm oil and support the prices of soybean and sunflower oil.

According to the estimates of the Ministry of Energy, the introduction of B35 will increase the demand for palm oil compared to 2022 by 19% from 11.03 to 13.15 million tons.

USDA experts predict that in FY 2022/23, palm oil production in Indonesia will increase compared to the previous season from 43.2 to 45.5 million tons, exports from 22.3 to 28.5 million tons, and domestic consumption from 17.8 to 18 million tons. In 2023, the country will use 37.58 million tons of diesel fuel with a content of 35% biodiesel from palm oil, the production capacity of which is 16.65 million tons per year.

The Department of Energy has also established a specification to improve biofuel standards that will ensure consumers that increasing biofuel content will not affect engine power. The government has been conducting road trials of biofuel containing 40% palm oil since July 2022 and plans to complete them by the end of the year.

According to the Indonesian Palm Oil Association (GAPKI), Indonesia exported 3.65 million tons of palm oil in October, compared to 3.21 million tons in October 2021. At the same time, oil production in October was 5 million tons, and its reserves fell to 3 .38 million tons (4.03 million tons in September).

February palm oil futures on Bursa Malaysia rose 0.4% to 3,910 ringgit/t, or $885/t, on news from Indonesia on Friday, trading flat for two weeks overall.

The market is pressured by a decrease in export rates from Malaysia for December 1-15 by 4-9.1% compared to the same period in November, and a drop in quotes on the Chinese stock exchange in Dalian for soybean oil by 2.72% and for palm oil by 1. 92%