Indonesia’s palm oil production will recover less than had been thought this season, although exports will beat expectations nonetheless, spurred by enhanced Chinese demand.

Palm oil output in Indonesia, the world’s top producer, will hit 44.70m tonnes in the 2022-23 season, as started in October, US Department of Agriculture’s Jakarta bureau said.

While up by 1.50m tonnes year on year, the figure was below the 46.50m tonnes that USDA officials have been factoring in, a shortfall the bureau attributed in part to “sub-optimal fertilizer application rates”, in the face of high nutrient prices.

The bureau also reported losses to the hangover from the three-week period earlier in the year when Indonesia’s government banned exports, prompting a plunge in domestic prices, and in turn undermining plantation operations.

‘Stronger demand’

Nonetheless, the bureau said that Indonesia’s palm oil exports would reach 29.0m tonnes in 2022-23 – 500,000 tonnes above the USDA’s forecast, and up nearly 6.7m tonnes year on year, and indeed a record high.

The rebound will be fuelled by “stronger demand from key markets and price competitiveness among other vegetables oils”.

This competitiveness has been enhanced by Indonesia’s decision to suspend its palm export levy until the end of this year, “in order to accelerate exports and reduce ballooning stocks caused by export ban-related backlogs”.

Exports to India, the top importer of Indonesian palm oil, will “recover”, as the vegetable oil “is expected to be the primary edible oil consumed in India, based on India’s improved economic performance and palm oil’s competitive price”.

Price competitiveness will also spur purchases by China, the second-ranked buyer.

“For example, PRC feed millers are expected to cut back on using soybean oil and switch to using more palm oil as soybean oil prices remain high,” the bureau said.

Biodiesel use

The bureau was, however, somewhat downbeat on prospects for Indonesia’s own consumption of palm oil this season, foreseeing it at 10.50m tonnes, 200,000 tonnes below the USDA’s official estimate.

The forecast factors in a delay until “2024 at the earliest” in the rollout of plans for B40, a 40% blend of biodiesel in transport diesel, given that road tests are still in progress.

“Since biodiesel allocations for each year must be publicised officially by the end of December of the previous year, this technical report will likely not be released in time for B40 allocations to be set for 2023.”

However, the report came as it was revealed that Indonesia’s government is investigating a mechanism to increase the blend next year to B35, from the current B30.

“With the implementation of B35, it will reduce our dependency on” imports of oil, said Airlangga Hartarto chief economics minister.