KUALA LUMPUR (Feb 26): Global biodiesel and hydrotreated vegetable oil (HVO) production is expected to decline this year as profitability has deteriorated significantly, said industry analyst Thomas Mielke.

According to Mielke, prices of feedstock such as palm oil, soybean oil and rapeseed oil are rising faster than diesel prices. The price gap between feedstock and diesels, he said, has become "unusually wide" between September and December 2024.

The more expensive feedstock prices have in turn eaten into profit margin of biodiesels. 

Mielke, editor and chief executive officer of ISTA Mielke GmbH (Oil World), said the price gap will be a key swing factor, which is likely to reduce usage and production of biodiesel and HVO in many countries.

"Look at the annual growth rate of biodiesel and HVO production worldwide. On average, we expect an increase of about four million tonnes each year. However, at the moment, we anticipate a decline of 0.5 million tonnes," he told the audience at the Palm and Lauric Oils Price Outlook Conference and Exhibition, hosted by Bursa Malaysia.

Mielke does not see Indonesia as being able to fulfil its B40 biodiesel mandate. "Despite all the announcements, I don't think so. But to what extent Indonesia will enforce fulfillment of the mandate to 40% will greatly influence prices of palm oil and other oil and fats in the months ahead.

“The Brazilian government also suspended the 1% increase (to B15 from B14) scheduled for March to prevent further domestic price increases," said Mielke.

Mielke pointed out that if governments were concerned with food inflation; they may view lowering biodiesel mandates as a relatively easier way to keep domestic prices in check and prevent consumer protests.

Indonesia, the world’s largest palm oil producer, expects its B40 biodiesel programme – aimed at reducing its reliance on imported diesel fuel – to reach full implementation next month after delays at the start of the year due to regulatory issues. In contrast, Malaysia’s B20 biodiesel mandate has faced significant setbacks, with officials citing infrastructure constraints as a key barrier to increasing the palm oil blending ratio in biodiesel.

Commenting on palm oil’s premium over soyoil, Mielke said the existing premium is expected to narrow within the next one to three months, as higher prices have dampened demand in key consuming markets like India.

Palm oil has been trading at a premium over other vegetable oils in recent months due to supply disruptions in Indonesia and Malaysia, driven by floods. Additionally, Indonesia’s efforts to boost biodiesel production using palm oil have tightened supplies. As a result, major buyers, including India, have shifted towards soybean and sunflower oils, leading to weaker demand for palm oil.

“Over the past four years, we have seen major price swings in palm oil, ranging from US$530 in May 2020 to US$1,900 in March 2022. Going forward, we expect palm oil prices to range between US$900 and US$1,100, but the premium over soyoil is likely to narrow in the coming months,” Mielke said.

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