Palm oil industry catalyst

This article has been translated by PwC Indonesia as part of our Plantation News Highlights service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.

Bisnis Indonesia - Katalis Industri Sawit

19 December 2022

By: Lili Sunardi & Sri Mas Sari

The Indonesian palm oil industry receives good news. A new regulation on B-35 implementation for Biosolar fuel effective from January 2023 is expected to maintain crude palm oil price next year amid numerous challenges. 

Some people predicted that various external factors, such as the excess of global recession and biofuel supply that starts to flow from Ukraine, will reduce crude palm oil (CPO) price.

However, it is believed that the domestic market absorption of this flagship commodity of Indonesia as an impact of the B-35 policy can lift global CPO price. 

The increasing portion of biodiesel to 35% in Biosolar, while it currently stands at 30% (B-30), is expected to result in tighter CPO stock as a raw material for biodiesel in the first half of 2023. Moreover, the decision of the Energy and Mineral Resources (EMR) Minister No. 205/2022 as the basis for B-35 implementation was issued only around 2 weeks before the turn of the year. 

Regarding this new policy, Indonesian Palm Oil Association (IPOA) General Secretary Eddy Martono said that Indonesia still has sufficient CPO supply to support the B-35 program. This means business actors are not required to change their business strategies significantly to align with the government’s policy. 

“[CPO] export is not expected to decrease because, if even the total consumption rises from 18 million tonnes to 21 million tonnes, it would still suffice,” said Eddy to Bisnis on Sunday (18/12). 

However, Eddy asked the government to anticipate the stagnating palm oil production at 50 million tonnes per year recently. This must be anticipated so that the biodiesel supply can meet the increasing need for fuel. 

If palm oil production does not increase, then industry actors must reduce the export portion in order to meet domestic needs. 

He considers the B-35 policy that will be implemented starting from January 2023 will not instantly lift CPO price in the global market since there are still external factors behind it. 

“But there is also an opportunity. If sunflower oil production is disrupted, palm oil can replace it,” he said. 

Seasoned CPO trader, Dorab Mistry, stated a projection of CPO price increase. CPO price is predicted to move between 3,500-5,000 ringgit per tonne until May 2023. This figure is higher than the previous estimate of the Godrej International Ltd. Director at a maximum of 4,500 ringgit until March 2023. 

As cited from Bloomberg at the end of last week, Mistry considers higher demand from the biofuel industry will continue to support palm oil price. 

The new mandate known as the B-35 has the potential to cut down Indonesia’s palm oil export, which contributes around one third of the global vegetable oil trade. According to him, the B-35 regulation in Indonesia may keep palm oil stock tight in the first half of 2023. 

On a similar note, Palm Oil Agribusiness Strategic Policy Institute (PASPI) Executive Director Tungkot Sipayung reckons the implementation of B-35 as an effective measure to address the threat of global recession in 2023. 

Tungkot said that the recession threat next year may result in plummeting CPO price in the global market down to US$700 per tonne due to weak purchasing power. 

Tungkot explained that business actors are most ready for B-35 implementation since biodiesel plant capacity has currently reached 17,000 kilolitres, which suffices for a production increase. 

Reducing imports

The EMR Ministry has stated that the B-35 is implemented to sustainably provide clean energy and reduce diesel fuel imports. 

Based on the distribution projection of Biosolar in 2022 at 36.47 million kilolitres and the assumption of 3% demand growth, Biosolar sales in 2023 is estimated to reach 37.56 million kilolitres. This calculation is complemented by the additional biodiesel need for B-35, so that the EMR Ministry allocated 13.14 million kilolitres of biodiesel in 2023.

“The utilisation of biofuel, including biodiesel, must be increased further by taking account of the CPO supply,” said the Director General of New, Renewable Energy and Energy Conservation, Dadan Kusdiana. 

Dadan stated that the current challenges in domestic biodiesel provision include production readiness, supporting facilities, and the price of fresh fruit bunch (FFB) at the farmers’ level. In addition, the government will also anticipate the incentives to be provided for the smooth course of B-35 implementation. 

The EMR Ministry hopes that biodiesel distribution next year can run more efficiently and minimise delays or supply failures. 

To that end, the government strives to arrange at least two biofuel business entities to supply every delivery point. The government also selects the business entities based on route optimisation for a more efficient transportation cost. 

Furthermore, the government also prepares a Market Index Price formula for biodiesel that reflects fairness and real conditions on site better, and creates an application for online biofuel distribution supervision.