NUSA DUA, (Indonesia): Indonesia’s palm oil output is forecast to recover next year, after an expected drop this year, but prices are expected to remain elevated on the back of a planned expansion of the country’s biodiesel mandate, industry analysts said.

The palm oil benchmark price in Malaysia has seen more than a 35% rise this year. The increase is partly due to sluggish output but also because of Indonesian government plans to increase its biodiesel mandatory blend for domestic sales to 40% in January, from 35% now. The aim of the biodiesel plan is to reduce the country’s fossil fuel imports.

Production next year in Indonesia, the world’s biggest palm oil producer, is expected to recover by 1.5 million tons compared with an estimated drop of just over a million metric tons this year, Julian McGill, managing director at consultancy Glenauk Economics, told the Indonesia Palm Oil Conference on Friday.

Thomas Mielke, head of Hamburg-based research firm Oil World, expected Indonesia’s palm oil production to increase by as much as 2 million tons next year after a 2.5 million ton drop in 2024. While Indonesia’s output is forecast to improve, supply from other places and of other vegetable oils are seen tightening.

Palm oil output by rival Malaysia is expected to dip slightly next year, after increasing by an estimated 1 million tons in 2024. “We would need a recovery in palm in 2025 because combined exports of soya, sunflower and rapeseed oils are declining,” Mielke said. The price surge in palm oil in the past seven weeks has been “frightening” for buyers, he said, and it may have reached a peak if Indonesia delays implementation of the B40 biodiesel. But if Indonesia enforced the policy, the price would rally by 10%-15% in January-March, Mielke said.

The current palm oil premium has already caused palm to lose some market share against other oils, he added. The Indonesia Palm Oil Association said additional feedstock of around 3 million tons will be needed for the B40 implementation.

Malaysian palm oil prices are seen trading at around $950 to $1,050 per metric ton in 2025, McGill of Glenauk estimated. The benchmark Malaysian palm oil was trading at around 5,000 ringgit ($1,140.51) on Friday.