Update: Indonesia scraps plan to introduce B50 biodiesel this year, will raise palm oil export levy
- B50 biodiesel plan scrapped due to technical and funding concerns
- Indonesia to raise crude palm oil export levies to 12.5% from March 1
- Scrapping B50 plan bearish for palm oil futures
Indonesia has scrapped plans for a mandatory B50 grade of palm oil-based diesel this year and will stick with B40 owing to technical and funding concerns, government officials said on Wednesday, easing concerns over strains on global palm oil supplies.
Indonesia had planned to launch the B50 grade - a blend of 50% palm oil-based biodiesel and 50% conventional diesel - in the second half of this year (learn more). Its mandate for B40, which uses a blend of 40% palm oil-based biodiesel, will remain in place.
The biodiesel mandate in Indonesia, the world's top palm oil producer, often affects global palm oil prices as increased domestic use reduces the available exports of the versatile vegetable oil.
Government officials met on Wednesday to discuss the biodiesel program and its funding.
"This year, it will stay at B40," Deputy Energy and Mineral Resources Minister Yuliot Tanjung said after the meeting. "There will be an increase of diesel production from Balikpapan refinery, so B40 is sufficient."
The government is reviewing the timeline to complete trials of B50 fuels, especially for trains, heavy equipment and machinery, energy ministry official Eniya Listiani Dewi told reporters after the same meeting.
Benchmark palm oil prices in Malaysia FCPOc3 lost 0.52% on Wednesday after the news. It gained as much as 1.33% earlier in the trading session.
"Indonesia scrapping its B50 plan for 2026 is bearish for palm oil prices as the market was expecting more absorption of CPO for the additional blend," said Anilkumar Bagani, commodity research head at a Mumbai-based brokerage Sunvin Group.
A B50 blending in the second half of this year was expected to absorb an additional 2.2 MMt of CPO to around 13.6 MMt used for biodiesel mandate last year, according to an estimate by palm oil think tank Indonesia Palm Oil Strategic Studies.
"The price buffer due to the B50-related hopes shall start to ease now and palm oil will be seen at discount against competing oils due to higher carryover, especially at Malaysia," Bagani added.
The decision added pressure to palm oil futures after Malaysia reported its palm oil inventories surged in December to a near seven-year high, breaching the psychologically important 3-MM tonne threshold.
In answer to a question from reporters on whether the B50 mandate would be implemented in 2027, chief economic minister Airlangga Hartarto said that would depend on the gap between prices of conventional diesel fuel and palm oil-based fuel.
Levy hike. Indonesia subsidizes its biodiesel program by plugging the price gap between fuels made from crude oil and palm oil, using proceeds from palm oil export levies collected by the Indonesian Estate Crop Fund Agency (BPDP).
The ever expanding mix, from B15 for only a few sectors in 2015 to B40 for nearly all diesel machines today, has put pressure on BPDP's ability to subsidize the program.
To sustain the agency, the government will raise the levy rates, Airlangga said.
Indonesia will raise crude palm oil export levies to 12.5% starting from March 1, said BPDP chief Eddy Abdurrachman. Levies for refined products will also be raised by 2.5 percentage points. It currently collects 10% levies on crude palm oil, with the rate for more refined products ranging between 4.75% and 9.5%.
The levy increase would affect Indonesian palm oil competitiveness in the global market and drive buyers to other suppliers such as Malaysia, Indonesian Palm Oil Farmers Association (POPSI) said.
Indonesia's energy ministry has allocated 15.65 MM kiloliters of palm oil-based biodiesel for this year's mandate, of which 7.45 MM kiloliters will be subsidized.
The Indonesian Palm Oil Association, GAPKI, said the decision to stick with B40 was the right move as it could balance CPO production, domestic needs and export volume.
"The policy is expected to maintain CPO prices against the competitive fossil fuel prices and sustain CPO exports volume for optimal revenues from the levy," GAPKI Secretary General Hadi Sugeng said.
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