Palm oil production in Indonesia in the 2023/24 marketing year is expected to increase by 3% to 46M tonnes compared to the previous year due to improved yields, according to a report by the United States Department of Agriculture (USDA).

However, El Niño weather conditions could bring severe dryness in the second half of the year, the 20 March Foreign Agricultural Service (FAS) report said.

The USDA expected Indonesia’s palm oil consumption in 2023/24 to rise by 5% to 19.9M tonnes compared to the previous year due to increasing industrial and food use.

Although Indonesia’s implementation of the new B35 blending rate officially started in February, the country’s largest fuel retailer Pertamina needed more time to adjust its infrastructure in some regions to accommodate the new rate, which would delay its full implementation by around six months, the report said. For this reason, the USDA had increased its forecast for palm oil industrial use in 2022/23 by 12% to 11.8M tonnes.

“Assuming the Indonesian government maintains the blending rate at 35% and fuel use growth at 2%, palm oil consumption for industrial use is expected to reach 12.7M tonnes for 2023/24,” the USDA said.

In the food sector, palm oil consumption in the country is projected to rise by 100,000 tonnes to 6.9M tonnes in 2023/24 due to continued growing demand from households and the food industry, according to the report.

The USDA forecast Indonesian palm oil exports at 28.5M tonnes, a slight increase from the previous year’s total of 28.4 tonnes, due to continued demand from major markets such as India, the People’s Republic of China (PRC) and Pakistan.

The downwards revision of palm oil exports in 2022/23 was due to the government’s export restriction policy to secure domestic cooking oil supplies ahead of Ramadan and Eid festivities between February and May this year, according to the report.

Indonesian palm oil exports totalled 10.7M tonnes between last October and January, an increase of 46% compared to the same period the previous year, reflecting the relaxation of Indonesia’s Domestic Market Obligation (DMO) policy, the report said.

“Demand from India for the remainder of 2022/23 depends on palm oil’s price spread vis-à-vis other vegetable oils, while PRC demand will likely be aligned with its economic performance following the easing of its “zero-covid” policy,” the USDA said.

Indonesia’s top five palm oil export destinations between 2018-2023 were India, China, Pakistan, Bangladesh and the USA, according to the report.