# Biodiesel (FAME) and Palm oil Palm oil is the feedstock for Indonesia's biodiesel programme, which used 14.2 million kL in 2025, so each rise in the blend mandate takes palm oil off the export market. Importers such as India feel this through tighter supply and a narrower discount of palm to soft oils. Source page: https://www.materialinsights.org/links/biodiesel-fame-and-palm-oil/ [Biodiesel (FAME)](https://www.materialinsights.org/energy/biodiesel/) (chemical) and [Palm oil](https://www.materialinsights.org/commodities/palm_oil/) (commodity): 4 relationships. ## How they are linked ### 1. Feedstock *Physical flow · Strong · Palm oil to biodiesel* Biodiesel is made by reacting vegetable oil with methanol, and in Indonesia and Malaysia crude palm oil is the cheapest oil to hand, with few incentives for refiners to use other feedstocks. - **14.2 million kL** palm biodiesel consumed in Indonesia, 2025 - **15.65 million kL** Indonesia's biodiesel allocation for 2026 Indonesia's domestic programme now uses palm oil on the scale of a major export market. Palm residues such as palm oil mill effluent and palm fatty acid distillate face lower export levies than crude palm oil, which favours exporting them rather than blending them at home. Sources: [The Star (Reuters)](https://www.thestar.com.my/business/business-news/2026/01/08/indonesia-mulls-palm-oil-export-levy-hike-to-support-biodiesel-mandate); [USDA Foreign Agricultural Service](https://www.fas.usda.gov/data/indonesia-biofuels-annual-8) ### 2. Blend mandate and export levy *Policy · Strong · Indonesian policy sets palm demand* Indonesia pays biodiesel blenders the gap between biodiesel and fossil diesel from a fund filled by palm oil export levies, so the mandate and the levy rise together. - **40%** biodiesel blend mandate from early 2025, up from 35% - **10% to 12.5%** export levy on the crude palm oil reference price, rise from March 2026 As the blend rose to 40%, energy officials said the plantation fund's cash reserves were dwindling. In January 2026 the government kept B40 for the rest of 2026, deferred B50 and raised the crude palm oil levy from 10% to 12.5% from March 2026. A higher levy lowers the price Indonesian growers receive and raises the delivered price for foreign buyers; when diesel is cheap against palm oil, the subsidy bill and the strain on the fund grow. Sources: [The Star (Reuters)](https://www.thestar.com.my/business/business-news/2026/01/08/indonesia-mulls-palm-oil-export-levy-hike-to-support-biodiesel-mandate); [UkrAgroConsult (USDA FAS data)](https://ukragroconsult.com/en/news/usda-lowers-indonesias-2024-25-palm-oil-export-estimate-due-to-b40-mandate-and-reduced-export-demand); [Petromindo](https://www.petromindo.com/news/article/indonesia-delays-b50-biodiesel-mandate-maintains-b40-and-raises-palm-oil-export-levy) ### 3. Price link: fuel use *Cost and price · Strong · Both ways* Biodiesel absorbs a large share of Southeast Asian palm supply, and palm competes with soybean oil, which serves as the biodiesel price proxy here, so the two prices move together. - **0.64** monthly change correlation - **0.88** 12-month change correlation - **0.90** fitted elasticity The strong yearly correlation reflects shared drivers: vegetable oils substitute for one another in food and fuel, and mandates in Indonesia, Brazil and the US all pull on the same pool of oils. Monthly moves diverge more, as palm responds to seasonal yield cycles, El Nino and Indonesian levy changes. Sources: [Material Insights (World Bank, FRED, IMF data)](https://www.materialinsights.org/energy/biodiesel/correlation/) ### 4. Mandate cuts edible oil exports *Cost and price · High in India · Indonesian blending tightens palm for food importers* Palm oil burnt as fuel in Indonesia cannot be exported, so a higher blend reduces export supply and supports world palm prices, which reach importers' kitchens. - **22.8 Mt** USDA estimate of Indonesia's palm oil exports, 2024/25, lowered after B40 - **7.58 Mt** India's palm oil imports in 2024/25, down from 9.02 Mt In 2024/25 USDA trimmed its Indonesian export estimate as B40 lifted domestic use, with production put at 45.5 Mt. India, for its part, switched towards soybean oil, and palm's share of its vegetable oil imports fell from 56% to 47%. The effect depends on relative prices: when palm is cheap against soft oils, Indian buyers return. Sources: [UkrAgroConsult (USDA FAS data)](https://ukragroconsult.com/en/news/usda-lowers-indonesias-2024-25-palm-oil-export-estimate-due-to-b40-mandate-and-reduced-export-demand); [UkrAgroConsult](https://ukragroconsult.com/en/news/india-summarizes-its-vegetable-oil-imports-for-the-my-2024-25/) ## For investors ### Key learnings 1. Indonesian blend and levy policy is one of the largest swing factors in world palm oil supply, and the January 2026 decision to hold B40 and defer B50 shows mandates can be paused when funding runs short. 2. The biodiesel subsidy is paid from export levies, so when palm oil is dear against diesel the subsidy bill rises and levy increases become more likely, as in 2026, which weighs on grower prices. 3. Palm and soybean oil prices move together over a year, so a biofuel shock in one origin spreads across the whole vegetable oil complex. ### What to track - **Indonesian blend level and annual biodiesel allocation**: Higher allocations remove palm from exports and support prices (Annual, with mid-year revisions · Indonesian Ministry of Energy and Mineral Resources) - **Palm oil export levy and reference price**: A levy rise lowers farm-gate prices in Indonesia and raises export costs (Monthly · Indonesian Ministry of Trade) - **Palm oil discount to soybean oil**: A narrow or reversed discount signals buyers switching away from palm (Daily · Bursa Malaysia and CBOT futures) ## For policymakers ### Key learnings 1. India's edible oil import bill is exposed to Indonesian energy policy, not only to weather and harvests. 2. Being able to switch between palm, soybean and sunflower oil limited the damage in 2024/25, so a diverse origin base matters for food price stability. 3. Domestic oilseed and oil palm programmes reduce exposure, but any biodiesel mandate in India would compete with the same scarce oils. ### What to track - **India's monthly vegetable oil imports by type**: A shift away from palm shows palm has become dear against soft oils (Monthly · Solvent Extractors' Association of India) - **Indonesian palm exports and stocks**: Falling exports with rising blending warn of tighter supply for importers (Monthly · GAPKI, USDA FAS) ## India India imported 7.58 Mt of palm oil in 2024/25, with Indonesia its largest supplier of crude palm oil, so Indonesia's biodiesel mandate also tightens India's cooking oil supply. ## Sources 1. [Price correlation, Material Insights](https://www.materialinsights.org/energy/biodiesel/correlation/), Material Insights (World Bank, FRED, IMF data) 2. [Indonesia mulls palm oil export levy hike to support biodiesel mandate](https://www.thestar.com.my/business/business-news/2026/01/08/indonesia-mulls-palm-oil-export-levy-hike-to-support-biodiesel-mandate), The Star (Reuters) (2026) 3. [USDA lowers Indonesia's 2024/25 palm oil export estimate due to B40 mandate and reduced export demand](https://ukragroconsult.com/en/news/usda-lowers-indonesias-2024-25-palm-oil-export-estimate-due-to-b40-mandate-and-reduced-export-demand), UkrAgroConsult (USDA FAS data) (2025) 4. [India summarizes its vegetable oil imports for the MY 2024/25 (SEA data)](https://ukragroconsult.com/en/news/india-summarizes-its-vegetable-oil-imports-for-the-my-2024-25/), UkrAgroConsult (2025) 5. [Indonesia: Biofuels Annual](https://www.fas.usda.gov/data/indonesia-biofuels-annual-8), USDA Foreign Agricultural Service (2024) 6. [Indonesia delays B50 biodiesel mandate, maintains B40 and raises palm oil export levy](https://www.petromindo.com/news/article/indonesia-delays-b50-biodiesel-mandate-maintains-b40-and-raises-palm-oil-export-levy), Petromindo (2026)