International biodiesel production to decline this year due to declining profitability

Global production of biodiesel and hydrotreated vegetable oils (HVO) will decrease this year due to a significant decline in the sector's profitability, says Thomas Mielke, CEO of ISTA Mielke GmbH (Oil World, Germany).

The prices of raw materials – palm, soybean and rapeseed oil – are increasing faster than the prices of diesel fuel, and between September and December 2024 the price difference between raw materials and diesel fuel became too large, reducing the profitability of biodiesel production. This price difference will be the main reason for the decrease in the use and production of biodiesel and HVO in the world.

If previously the annual growth rate of biodiesel and HVO production averaged 4 million tons per year, now it is expected to decrease by 0.5 million tons.

Experts believe that Indonesia will not be able to fulfill its mandate to blend B40 biodiesel, but its actions in this direction will significantly affect the prices of palm oil, as well as other oils and fats in the coming months, experts note.

The Brazilian government has also suspended a planned 1% mandate increase (from 14% to 15%) in March to avoid increasing domestic prices. Malaysia will also be unable to significantly increase the proportion of palm oil blended into biodiesel due to infrastructure constraints.

To reduce food price inflation, governments in these countries could lower biodiesel requirements, which would control domestic prices and prevent consumer protests.

At the same time, analysts believe that the price difference between palm and soybean oils may narrow over the next two to three months as high prices reduce demand in key consumer markets such as India.

Palm oil has been selling at a premium to other vegetable oils in recent months amid supply disruptions caused by floods in Indonesia and Malaysia. In addition, supplies from Indonesia have declined as a result of measures to increase palm oil-based biodiesel production. As a result, major buyers, including India, have switched to soybean and sunflower oils, which has led to a decline in demand.