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Malaysia, the world’s second-largest palm oil producer, is studying an increase in the share of palm oil used in biofuels, following the direction taken by Indonesia, the world’s largest producer, according to industry sources cited by The Hindu BusinessLine.
Malaysia currently requires a 10% palm oil blend (B10) in transport fuel and a 20% blend (B20) for industrial use. By contrast, Indonesia follows a more ambitious policy by mandating a 40% biodiesel blend.
Malaysia is also intensifying research into sustainable aviation fuel derived from palm oil, as well as advanced biofuels, in line with its climate goals and its efforts to diversify palm oil markets.
Industry specialists say higher crude oil prices caused by global political tensions are increasing interest in biofuels as an alternative energy source. This could lift demand for palm oil-based biofuels in regions such as Southeast Asia, India, and West Asia, both in transport and industrial uses.
However, this push to increase biofuel demand comes at a time when the world is facing food security challenges, adding further complexity to the global picture.
Malaysia’s steps are aligned with moves in other countries such as the United States, which recently proposed allowing refiners to blend record volumes of biofuels into gasoline and diesel next year. Brazil has also decided to raise its biodiesel blend from 14% to 15% starting August 1.
Despite this, vegetable oil prices have declined because of weak nearby demand from major buyers such as India, which is expected to reduce soybean oil imports.
Concerns have also emerged over a potential global surplus due to rising inventories and production of palm oil. Palm oil closed on Thursday at RM4,020, or $951 per tonne, down from last week’s peak, which was influenced by escalating tensions between Iran and Israel and a nearly 20% rise in crude oil prices.
Although B20 is currently used only in selected areas of Malaysia, the Ministry of Plantation and Commodities said in February 2025 that nationwide implementation would require significant funding to improve infrastructure.
The sector hopes to receive government support, but there are currently no plans to provide such funding.
Malaysia launched its national biofuel program in 2019, mandating B10 in the transport sector and B7 in the manufacturing sector. However, B20 implementation remains limited to areas such as Labuan, Langkawi, and parts of Sarawak in East Malaysia.
Malaysia exports most of its biofuel output to the European Union, which accounts for more than 80% of exports, as well as China and Singapore, according to the Malaysian Biodiesel Association.
While some industry players are optimistic about the future of biofuels and partnerships with private companies, others remain cautious because of price volatility.
For example, Indonesia’s mandatory B40 program has reduced global supply, making palm oil more expensive than competing oils such as soybean oil.
As a result, palm oil’s share of India’s total vegetable oil imports fell to 43% during the first seven months of the 2024–2025 season, compared with 58% in the previous year.
However, Malaysian palm oil industry leaders view this decline as temporary, linked to India’s domestic policies supporting the expansion of oilseed cultivation and diversification of oil sources.
Malaysian palm oil production is expected to increase moderately in 2025 and 2026, supported by better weather, replanting with higher-yielding varieties, and improved harvesting efficiency through mechanization and advanced technologies.
Still, challenges such as labor shortages, climate volatility, and slow adoption of modern technology may limit these gains.
One industry source said prices are expected to remain relatively strong through 2026 because of global political tensions affecting vegetable oil supply chains, price volatility in competing oils such as soybean and sunflower oils, currency movements, and biofuel-related policies.
The source warned, however, that demand from major importing countries may fluctuate in the short term, creating price volatility. Palm oil production is especially sensitive to weather and labor availability, making it vulnerable to repeated price swings.