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Malaysian crude palm oil futures are expected to average higher in 2025 than last year, as Indonesia, the world's largest producer, increases its consumption of palm oil-based biodiesel, although competition from cheaper rival oils is expected to limit the increase, according to a Reuters survey.
Benchmark palm oil prices are forecast to average 4,350 ringgit ($972.07) per tonne this year, up 5.4% from 2024, according to the median estimate from 11 traders, analysts and industry participants.
Crude palm oil averaged around 4,128 ringgit in 2024, up 8.7% from the previous year, as adverse weather hit supplies and pushed the market to a two-and-a-half-year high in November.
Anilkumar Bagani, head of research at India's Sunvin Group, a vegetable oils trading firm, said Indonesia's commitment to its B40 biodiesel blend "will reduce the availability for exports, which will benefit Malaysian palm oil exports".
Roslin Azmy Hassan, chief executive of the Malaysian Palm Oil Association, said "raising Indonesia's biodiesel blending rate to 40% in 2025 is expected to absorb an additional 1.2 to 1.7 million tonnes of crude palm oil". He added: "Lower palm oil exports from Indonesia, combined with adverse weather in Southeast Asia, are likely to support higher prices."
Roslin Azmy noted that the market could get a further boost if Indonesia raises export levies to help fund its biodiesel policy.
Indonesia plans to raise export levies on crude palm oil from 7.5% to 10% to help finance its ambitious biodiesel plans, but this requires new regulation to be issued, according to Indonesian officials.
However, gains in palm oil prices are likely to be limited by increased supplies of competing soybean oil from South America, which has recently become available at a discount to palm oil, according to a New Delhi-based trader working with a global trading firm.
Indonesia and Malaysia are expected to see a slight increase in palm oil production in 2025.
Indonesia's output is forecast to rise 1.9% from last year to 49.8 million tonnes in 2025. Malaysia, the world's second-largest producer, is expected to produce 19.5 million tonnes, up 0.83% from last year and the highest level since 2019.
Industry officials say adverse weather, a persistent labour shortage and low replanting rates continue to weigh on the growth potential of Malaysia's palm oil production.
Source: Reuters