Indonesia’s thirst for biodiesel may undercut global palm oil supply

The government began mandatory use of B30 biodiesel – made up of 30 percent palm oil-based biofuel – in December 2019. (Antara Photo/Aprillio Akbar). Sketched by the Pan Pacific Agency.

JAKARTA, Feb 6, 2020, Jakarta Globe. The Indonesian Palm Oil Association, or Gapki, said on Monday that Indonesia is likely to use up 8.3 million tons of palm oil to meet domestic demand for biodiesel this year, raising concerns there won’t be enough palm oil left to export, Jakarta Globe reported.

The government began mandatory use of B30 – diesel fuel made up of 30 percent biofuel from palm oil – last month and is already preparing to use the upgraded version, B40, next year.

“Domestic demand for palm oil in 2020 is estimated to reach 8.3 million tons to be processed into biodiesel, which may reduce heavily the amount of palm oil available for export,” Gapki’s executive director, Mukti Sardjono, said in a statement on Monday.

On the production side, Gapki said expected favorable weather may help the country produce a higher output than last year.

Indonesia’s crude palm oil and palm kernel oil production hit a record 51.8 million tons last year, up 9.1 percent from 2018, despite a long drought.

Crude palm oil (CPO) production rose 9.4 percent to 47.2 million tons while palm kernel oil production increased 8.6 percent to 4.6 million last year from the previous year, Gapki data showed.

Exports – despite the adverse effects of the United States-China trade war, India’s tariff discrimination and the European Union’s biodiesel ban – still managed an increase of 4 percent to 36.2 million.

“The US-China trade war put a strain on the former’s soybean exports. US farmers who used to ship large quantities to China were forced to find new markets, putting huge pressures on the prices of oilseed and edible vegetable oils,” Mukti said.

As a result, CPO prices in the global market have been under pressure since the first half of last year. Gapki estimated the export value of palm oil products, including oleochemicals and biodiesel, had declined to $19 billion last year, down 17 percent from $23 billion in 2018.

The decline in export value could have been more severe, but the CPO price recovered after President Joko “Jokowi” Widodo announced in his state address that Indonesia would increase domestic use of CPO for biodiesel.

CPO price closed at $800 per ton in Rotterdam port at the end of last year, almost twice the price it was in August, as Indonesia began using the B30.

Wuhan Outbreak

Gapki said the coronavirus outbreak in China is likely to hamper Indonesia’s palm oil exports there.

The world’s second-largest economy was Indonesia’s largest CPO and kernel palm oil market, buying a total of 6 million tons last year ahead of India (4.8 million tons) and the European Union (4.6 million tons).

China was also the biggest buyer of Indonesia’s oleochemical and biodiesel products. The country imported 825,000 tons of the commodities from Indonesia last year, ahead of the EU’s 513,000 tons.

“I hope the coronavirus outbreak will not last too long since all export activities to China have been stopped temporarily,” he said.

Indonesia could still take confidence in the increase in CPO demand in other markets like Africa, which imported 2.9 million tons of palm oil products last year, up 11 percent from 2018.

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