SDG: Biodiesel Mandate Delay Impacts Sector Outlook
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The Indonesian government’s likely deferral of the B50 (50% biodiesel blend) mandate until at least 2026 is set to introduce headwinds for the plantation sector, prompting a re-evaluation of Crude Palm Oil (CPO) price forecasts. The policy is expected to maintain a B40 blend for the immediate future, with ongoing studies into the higher blend’s implications.
Sector Performance and Challenges
The delay stems from ongoing assessments regarding the B50 mandate’s impact on automotive engines, the palm oil-gas oil (POGO) spread, and the necessary funding mechanisms. This postponement is viewed as a negative development for CPO prices, which were previously anticipated to benefit from increased biodiesel absorption. Consequently, the CPO price assumption of MYR4,250/tonne for 2026 is currently under review.
Future Outlook and Policy Considerations
Coordinating Minister for Economic Affairs, Airlangga Hartarto, confirmed that the biodiesel policy will remain at B40 as directed by President Prabowo Subianto. While preparations for B50 implementation in the latter half of 2026 are advancing, the actual policy rollout remains contingent on existing price conditions. Financing the B50 mandate for a full year, particularly given the current POGO spread of USD382/tonne, could necessitate a significant increase in the palm oil export levy—potentially rising to 13.3% from the current 7.5%. Furthermore, the 2026 biodiesel allocation, set at 15.646 million kilolitres, shows only a marginal increase over the 2025 target of 15.62 million kilolitres, indicating limited immediate additional demand for CPO.
Investment Bank’s Assessment
The investment bank maintains a Neutral rating on the plantation sector. This stance reflects the heightened downside risks for CPO prices stemming from the mandate uncertainty and potential adjustments to supply and demand dynamics. Analysts will closely monitor future policy announcements, particularly regarding changes to the export levy, before making revisions to CPO price assumptions.
