The surge in biodiesel demand and stagnating palm oil production are driving prices higher, a significant shift for this once-affordable commodity. Indonesia, the top producer, is increasingly prioritizing biodiesel, which is affecting global markets where palm oil typically holds a price advantage over competing oils. This trend has led to analysts predicting that the days of discounted palm oil prices are over.
Used widely in food products like cakes and frying oil, as well as in cosmetics and cleaning items, palm oil constitutes over half of global vegetable oil shipments, especially among emerging markets such as India. Industry expert Dorab Mistry emphasizes that with Indonesia shifting towards biodiesel, palm oil will likely never reach previous low price points. The country has also increased the required blend of palm oil in biodiesel to 40% this year, with plans to consider a 50% blend in the coming years.
This shift is projected to reduce Indonesia’s palm oil exports significantly by 2030. As palm oil production slows due to factors like floods in Malaysia and lower replanting rates, prices have begun to rise. For example, in India, crude palm oil prices surged above those of soybean oil for the past half year, a stark contrast from late 2022, when palm oil was much cheaper.
Palm oil production has historically grown rapidly but has hit a plateau in recent years. Concerns over deforestation and limited space for new plantations have stunted growth in Indonesia and Malaysia. Replanting has also become a pressing issue, as older trees significantly reduce productivity.
Even countries such as Colombia and Nigeria, which have recently increased their outputs, are falling short of meeting the rising global demand. Industry experts warn that if Indonesia retains its moratorium on new plantations, the resulting production restrictions may lead to heightened price volatility, impacting billions of consumers who rely on palm oil. While the future may pose challenges, demand for palm oil in sectors like biofuel and chemicals is expected to continue rising, creating a potential demand-supply imbalance.