Malaysia’s Palm Oil Industry Poised for Growth Amid Indonesia’s Export Levy Plans

Currently, Indonesia’s CPO commands a $146.30 per tonne premium over Malaysia’s, a gap that could widen with the additional 10% levy. “The relatively high Indonesian CPO export tax and duty could drive demand toward Malaysian CPO, supporting its price and market share,” TA Securities noted.

Indonesia’s Biodiesel Mandate Faces Delays

The proposed export levy increase coincides with a delay in Indonesia’s B40 biodiesel mandate, which aims to raise the palm-based methyl ester blend in diesel from 35% to 40%. Infrastructure and technical hurdles have postponed the program, initially slated for January 2025.

High palm oil prices, which surged 20% in 2024, have also strained the viability of the mandate. Futures on Bursa Malaysia Derivatives were trading at RM4,226, with palm oil’s premium over gasoil reaching $305 per tonne—triple the five-year average.

“The market is increasingly concerned about whether Indonesia’s biodiesel subsidy fund can bridge the price gap between biodiesel and diesel,” TA Securities said. The Indonesian Palm Oil Plantation Fund Management Agency estimates a 2025 funding need of 47 trillion rupiah, far exceeding expected revenues of 21 trillion rupiah.

Implications for Malaysia

If Indonesia's B40 mandate is delayed until the second half of 2025, as projected, Malaysia’s palm oil producers stand to benefit. Lower costs and stable market access could strengthen Malaysia’s position in the global palm oil market.

With rising demand for edible oils amid supply concerns caused by adverse weather, Malaysia is well-positioned to capture a greater share of the market. However, ongoing competition and price volatility remain significant challenges for the sector moving forward.