(JAN 6): Demand for Malaysia’s palm oil could rise if Indonesia goes through with its plan to raise export levy to support the higher biodiesel mandate, TA Securities said on Monday.

Raising the export levy to 10% would add US$26.49 per tonne, making Indonesian crude palm oil (CPO) even more expensive than Malaysia’s product, the research house said. The price of Indonesia’s palm oil is already at a premium of US$146.30 per tonne above that of Malaysia, it noted.

“We believe that the relatively high Indonesian CPO export tax and duty could drive demand toward Malaysian CPO, supporting its price and market share,” TA Securities said.

The proposed increase in Indonesia’s export levy comes following a delay in the rollout of the B40 mandate — which raises the blend of palm-based methyl ester with traditional petroleum diesel to 40% from 35% currently — for infrastructure adjustments and other technical details.

Rising prices of the edible oil used in everything from lipstick to infant formula have also threatened the viability of the mandate. The programme, initially slated for Jan 1, was expected to soak up domestic output amid burgeoning stockpiles and support Indonesia's energy transition.

Palm oil futures eased off highs in the final month of 2024 amid seasonal high production period and were up 20% for the whole year amid concerns over supply due to adverse weather conditions. The benchmark third-month contract was trading at RM4,226 on Bursa Malaysia Derivatives.

Palm oil’s premium over gasoil has surged to about US$305 per tonne, more than three times the averages in the past three years and five years.

“The market is increasingly worried about whether Indonesia's biodiesel subsidy fund can adequately bridge the price gap between biodiesel and diesel,” TA Securities said.

The Palm Oil Plantation Fund Management Agency of Indonesia projects a funding requirement of 47 trillion Indonesian rupiah for 2025, far exceeding its anticipated revenue of up to 21 trillion rupiah.

The implementation of B40 in Indonesia may take time to materialise, likely occurring in the second half of 2025, TA Securities concluded, citing the need for infrastructure improvements, supply chain adjustments, logistical and funding challenges.