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Palm oil consumption in Indonesia in 2022/23 is expected to rise to 19.4M tonnes due to increasing demand from the biodiesel sector following the government’s introduction of higher mandatory blending rates, according to a report by the United States Department of Agriculture (USDA).

Indonesia’s energy ministry increased the country’s mandatory blending rate from 30% palm oil biodiesel (B30) to B35 earlier this month.

The move is expected to drive industrial palm oil use to 12.3M tonnes in 2022/23, according to the 6 February Foreign Agricultural Service (FAS) report.

As part of its 2023 biodiesel blending mandate programme, the government assigned 21 biodiesel producers to supply 13.15bn litres of fatty acid methyl ester (FAME), the report said.

Regarding the government’s future plans to adopt a B40 blending rate, road tests were completed at the end of last year and a senior official at the Ministry of Energy and Mineral Resource (ESDM) said that B40 was “safe and implementable”, the USDA said.

In the food sector, the USDA increased its projected 2022/23 palm oil consumption by 100,000 tonnes to 6.8M tonnes due to expected increasing cooking oil demand during Ramadan.

The government’s official lifting of all mandatory COVID-19 related restrictions in December was expected to boost the travel and food sectors, especially during peak travel seasons around Ramadan and Eid, the report said.

In line with rising crude palm oil (CPO) prices, cooking oil prices continued to increase in January 2023 and, at the time of the report, were 2% higher than in October 2022.

In late January, the government announced plans to increase cooking oil supplies by 50% to 450,000 tonnes from February to March 2023 in anticipation of higher demand during Ramadan.

The USDA retained its earlier forecast for Indonesian palm oil production in 2022/23 at 44.7M tonnes, while production estimates for 2021/22 were also unchanged at 43.2M tonnes.

Indonesian national weather agency BMKG expected the “triple-dip” La Niña to end around March, bringing down precipitation intensity. However, the BMKG warned of potential drought conditions for Indonesia in June-September.

A long, severe drought over oil palm plantation areas would be likely to impact production five to six months later, the report said.

The USDA revised its forecast for 2022/23 palm oil exports down to 28.8M tonnes due to the government’s revised Domestic Market Obligation (DMO) policy.

The Indonesian government lowered its palm oil DMO export ratio from early January, tightening restrictions on palm oil exports with the aim of securing sufficient domestic supplies of palm-based cooking oil ahead of Ramadan 2023 festivities, the report said.

The revised policy changed the DMO export ratio from 1:8 to 1:6, meaning an exporter would now be permitted to export six tonnes of palm oil or palm oil products for every one tonne of palm oil sold to the domestic market (as crude palm oil or cooking oil).

Indonesia’s extension of the palm oil export levy waiver from mid-July to November 2022, introduced to offset the negative effects of the DMO policy on exports, was likely to have led to an increase in exports of palm oil products to 6M tonnes during the first two months of the 2022/23 marketing year, which was 53% higher than the same period the previous year.

In late December, India - a major importer of palm oil products - extended its import policy lowering duties on refined palm oil imports for the 2022/23 marketing year, driving up Indonesian palm oil product exports to India.

However, India’s palm oil imports were expected to slow down after March due to larger domestic vegetable oil supplies and palm oil’s declining competitiveness compared to alternative vegetable oils, the report said.