Indonesia’s plan to raise the biodiesel mandate to 35% (B35) from 30% will boost sentiment but may not effectively lower stocks in the near term, said CGS-CIMB Research analysts Ivy Ng Lee Fang, Nagulan Ravi and Peter Sutedja.
The B35 policy — effective on July 20 — is aimed at reducing palm oil inventories in Indonesia, which have been building up following a three-week export ban from April 28 to May 23. Since the lifting of the export ban, crude palm oil (CPO) price in Indonesia has fallen by 48% to IDR7,288 (68 cents) per kg as at July 8.
In their July 11 note, the analysts said the policy will help raise domestic palm oil usage, reduce stocks and improve domestic prices sentiment. However, it will take time to resolve current high stocks as they estimate the additional absorption rate of CPO is at 134,000 tonnes per month.