Kuala Lumpur’s thinking is in sync with countries such as Indonesia, the US and Brazil
Malaysia, the world’s second largest palm oil producer, plans to “actively assess” prospects to increase the percentage of palm oil in biofuels, similar to Indonesia, industry sources said.
Malaysia currently mandates B10 for transportation and B20 for industrial use. Indonesia, the number 1 producer, on the other hand, has mandated a 40 per cent blend of palm oil in biodiesel.
Research and development (R&D) into palm-based aviation fuel (SAF) and next-gen biodiesel is ongoing in Malaysia, whose biofuel strategy complements climate commitments and palm oil market diversification. Geopolitical tensions and the resultant crude oil price surge typically spur interest in biofuels as an alternative energy source. This could result in higher demand for palm-based biofuels in ASEAN, India and West Asia, in both the transport and industrial energy sectors, an industry insider with access to government policies told businessline.
With increased demand for biofuels and food security concerns, the going could be a tough balancing act for the global community.
Malaysia’s line of thinking is in sync with other nations such as the US. Washington has reportedly proposed allowing refiners to blend a record volume of biofuel into gasoline and diesel next year. On Wednesday, Brazil decided to increase the biodiesel blend in diesel to 15 per cent from 14 per cent, from August 1.
However, the upside in edible oils has been capped by weaker near-term edible oil demand from top buyers such as India, amid signs that the country’s soya oil imports could fall.
Higher palm oil inventories and production have raised concerns of a potential supply glut. On Thursday, palm oil closed at 4,020 Malaysian ringgits ($951) a tonne. However, prices have come off the highs witnessed last week due to the Israel-Iran stand-off and a nearly 20 per cent rise in crude oil prices.
Currently, the B20 biodiesel, which blends 20 per cent palm oil with 80 per cent regular diesel, is only used in select areas. In February 2025, the Malaysian Ministry of Plantation Industries and Commodities said in Parliament that to expand the B20 programme, substantial funding to improve infrastructure is needed. The industry generally hopes for government funding, but the latter has no plans to provide it at this time.
Malaysia introduced the National Biodiesel Programme and mandated the transportation sector to use B10 biodiesel, a blend of 10 per cent palm oil with diesel, in 2019. The same year, the B7 blend was implemented in the manufacturing sector. However, the B20 programme is yet to take off full-fledgedly. It is in force only in limited areas such as Labuan, Langkawi and parts of Sarawak in East Malaysia.
Malaysia exports biodiesel to the EU (which imports more than 80 per cent), China and Singapore among others, per Malaysian Biodiesel Association website.
While a cross-section of the industry is upbeat on the prospects of biodiesel and collaborating with private players, some are sceptical, citing price fluctuations. Top palm oil producer Indonesia launched the mandatory B40 biodiesel programme, which led to tight supplies in the global market, pushing up prices. It made palm oil more expensive than rival oils such as soya oil.
As a result, the share of palm oil in India’s total edible oil imports decreased to 43 per cent (58 per cent) during the first seven months of the oil year 2024-25. But Malaysian palm oil industry captains view the drop in imports as short-term market dynamics, domestic policy support for oilseed expansion, and diversification of edible oil sources.
Malaysian palm oil output is projected to rise moderately in 2025 and 2026, supported by better weather conditions, replanting with higher-yielding materials and improved harvesting efficiency via mechanisation and AI-driven tools. However, productivity may be moderated by labour shortages and increasing climate unpredictability, and slow technology adoptions.
“We expect prices to remain moderately firm into 2026 due to geopolitical tensions and their impact on global edible oil supply chains, volatility in competing oilseed prices (soyabean oil, sunflower oil) and currency movements and biofuel mandates. However, demand uncertainties in key importing countries may introduce short-term fluctuations,” the source said. Palm oil production is vulnerable to weather conditions and labour shortages, leading to more price fluctuations.
