The end of cheap palm oil? Output stalls as biodiesel demand surges
By Rajendra Jadhav, Bernadette Christina and Ashley Tang
KUALA LUMPUR/JAKARTA (Reuters) – Prices of cooking oil could be buoyed up for years by stagnating production and a biodiesel push in top producer Indonesia that are making traditionally cheap palm oil costlier, eliminating an advantage that also curbed prices of rival oils.
Used in everything from cakes and frying fats to cosmetics and cleaning products, palm oil makes up more than half of global vegetable oil shipments and is especially popular among consumers in emerging markets, led by India.
After decades of cheap palm oil, thanks to booming output and a battle for market share, output is slowing and Indonesia is using more to make biodiesel, respected industry analyst Dorab Mistry said.
Mistry, a director of Indian consumer goods company Godrej International, added:
Those days of $400-per-ton discounts are gone,
“Palm oil won’t be that cheap again as long as Indonesia keeps prioritising biodiesel.”
Indonesia increased the mandatory mix of palm oil in biodiesel to 40% this year, and is studying moving to 50% in 2026, as well as a 3% blend for jet fuel next year, as it seeks to curb fuel imports.
The biodiesel push will reduce Indonesia’s exports to just 20 million metric tons in 2030, down a third from 29.5 million in 2024, estimates Eddy Martono, chairman of the southeast Asian nation’s largest palm oil association, GAPKI.
Jakarta’s biodiesel mandate, coupled with lower production because of floods in neighbouring Malaysia, has already lifted palm oil prices above rival soyoil, prompting buyers to cut purchases.
In India, the largest buyer of vegetable oils, crude palm oil (CPO) has commanded a premium over crude soybean oil for the past six months, sometimes exceeding $100 per ton. As recently as late 2022, palm oil traded at discounts of more than $400.
Indians were paying $1,185 a ton for crude palm oil last week, up from less than $500 in 2019.
Higher vegetable oil prices could complicate governments’ efforts to rein in inflation, whether in palm oil-reliant nations or those dependent on rival soybean, sunflower, and rapeseed oils.
STUNTED GROWTH
Palm oil production, dominated by Indonesia and Malaysia, nearly doubled every decade from 1980 to 2020, fuelling criticism over deforestation to add plantations.
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The end of cheap palm oil? Output stalls as biodiesel demand surges, source
