Indonesia b40 may be postponed to after 2022

One of the negative effects of the sharp rise in vegetable oil prices in the past two years is that biodiesel production and demand in various countries are generally facing greater pressure. High prices have pushed up the cost of biodiesel raw materials. Under the background of insufficient follow-up of crude oil prices, the price difference between vegetable oil and crude oil has expanded significantly, which has significantly increased the profit pressure of enterprises and the subsidy pressure of the government. This is not true. American refineries and relevant interest groups are lobbying the government hard to reduce the blending amount of biofuels, which makes the Biden government in a dilemma and has been unable to launch the new rvos scheme for a long time. New news has also come from Indonesia’s raw wood blending policy.

Reuters reported that a senior Indonesian official said that Indonesia’s b40 plan originally scheduled to be implemented in July may face further delay because of the high cost of implementing the plan due to the sharp rise in vegetable oil prices. Since 2020, Indonesia has implemented the green diesel blending plan of B30 in China, adding 30% biodiesel with palm oil as raw material to diesel, which has played a positive role in absorbing Indonesia’s excess capacity of palm oil and maintaining price stability.

However, compared with the low-cost petrochemical diesel, the cost of biodiesel is higher, which often makes commercial production and blending unprofitable. Therefore, countries that encourage the development of biodiesel have subsidies. The United States gives producers a $1 / gallon tax credit. In addition, some states have their own incentive policies. Indonesia directly subsidizes the price difference between petrochemical diesel and biodiesel. The funds come from the oil palm industry fund – an organization established by Indonesia to encourage domestic consumption after the raw firewood was anti-dumping by the EU at the end of 2013. The funds come from the export levy imposed on palm oil products.

Generally speaking, the production cost of palm oil biodiesel is about 60-70 US dollars / ton. Therefore, when the pogo price difference is less than – 70 US dollars / ton, the commercial mixing profit will be given. Since May last year, the pogo price difference has continued to rise, rising sharply from the position of nearly US $180 / ton, making the commercial mixing profit deteriorate rapidly. The high pogo price difference has led to the rapid consumption of funds of the oil palm industry fund. In order to ensure sufficient funds to subsidize the implementation of the raw wood blending plan, Indonesia has revised the export levy standard of palm oil products three times, and the B30 plan in 2020 can be implemented smoothly.

In 2021, the focus of pogo price difference is only higher than that in 2020, and the annual biodiesel use target has been increased from 840 to 9.2 million kiloliters, making the oil palm industry fund face greater capital pressure again. It is estimated that in order to ensure the implementation of the B30 plan in 2021, idr45-46 trillion (US $3.1-3.2 billion) is needed to subsidize the price difference between petrochemical diesel and biodiesel this year. If the price remains unchanged, the implementation of b40 plan will require about idr60 trillion (US $4.16 billion), and the implementation of b40 plan will inevitably continue to push up the price of palm oil, which will make the implementation of the plan more expensive.

The Indonesian palm oil Association said in January this year that b40 is expected to be postponed beyond 2022. Under the high pogo price difference, the market had expressed concern about whether Indonesia could continue to implement B30, and basically did not expect the successful launch of b40. Therefore, after the news was sent out, the horse market once fell and rebounded rapidly, which only disturbed the mood, and the market trading point still fell on the tight supply of horse brown. Sppoma’s latest forecast shows that the output of horse Brown increased by only 8.5% month on month from August 1 to 25, narrower than the 11.5% increase in the previous 20 days, which alleviates the market’s concern about the increase of horse Brown production. Under the slow inventory reconstruction speed of horse palm, the import profit is upside down and the domestic futures are deeply discounted. It is expected that the disk performance of palm oil will continue to be strong in the medium term.

Source: CFC agricultural products research

Post time: Sep-01-2021