Biodiesel demand, lower output growth to push vegoil prices higher

Global vegoil prices are set to rise over the next year as a slowdown in production struggles to keep up with growing demand from Southeast Asia’s biodiesel industry, an analyst said Friday.

Southeast Asia’s booming biodiesel industry is expected to drive demand for palm oil over the coming year, which will soak up Indonesia's additional output, Thomas Mielke, CEO of German researcher Oil World, said at the Globoil 2019 conference in Mumbai.

“The Indonesian government is pushing for B30 implementation from January onwards… If they do that it will imply a further increase of 2.5 million mt in palm oil consumption and Indonesian exports would decline as an effect,” Mielke said.

The annual growth of palm oil production is expected to slow after doubling over the past decade.

Hamburg-based Oil World has pegged 2020 Indonesian palm oil production at 46 million mt, while Malaysian production will “drop slightly” from 20.5 million mt in 2019.

“We expect growth in Indonesian production will slow down to 2 million mt from 5 million mt growth during the last season. This will create a production deficit and support global palm prices,” Mielke said.

“The marginal increase [in production] is not enough, and a relatively small shortage could create a lot of price swings for palm oil,” Mielke said.

Indonesian palm oil prices are expected to rise by 24% to $580/mt FOB.

That increase will drag the wider vegoil complex higher, with Argentina’s soyoil prices forecast to rise 11% to $710/mt FOB Up River by July 2020, while Mielke put a $740/mt price target on Ukrainian sunoil.