International crude oil prices are weak, and the price of 5,000 ringgit palm oil is unsustainable.

(Kuala Lumpur, 21st) Despite the recent rise in crude palm oil prices to 5000 ringgit per ton, analysts believe that if the international oil price trend continues to diverge, it will affect Indonesia's biodiesel plan, and the upward trend in crude palm oil prices will be difficult to sustain.

According to research from Malaysian banking institutions, despite Indonesia's plan to increase the biodiesel blending ratio from B35 to B40 in January 2025, the high price of palm oil along with the low crude oil prices will lead to a significant increase in subsidy pressures.

Based on official data, the price differential between palm oil and diesel (POGO) in November is approximately 6000 Indonesian rupiah per liter, equivalent to 446 US dollars per ton (approximately 1990 ringgit).

In other words, based on the estimated consumption of 16 million kiloliters of B40 biodiesel, the subsidy requirement in 2025 will reach 95.8 trillion Indonesian rupiah (approximately 27 billion ringgit).

Analysts point out that this could lead to the palm oil fund that the country provides for the biodiesel plan running out by the end of the first quarter of 2025, especially with the country reducing export taxes from September, which will further reduce income.

If crude oil prices do not significantly rise, it will be difficult to sustain the current price of 5000 ringgit per ton of palm oil. It is expected to drop to around 4000 ringgit per ton at the beginning of next year under market pressure. The Indonesian government will also be forced to increase export taxes.

To ensure the success of the B40 biodiesel policy, there needs to be a significant price rollback of palm oil, a crude oil price increase of more than $50 per barrel, a substantial increase in export taxes by the Indonesian government, and the government adjusting the subsidy formula to pass on some costs to the end consumers.

In terms of the biodiesel plan, the Indonesian government also ambitiously aims to introduce B50 in the future, which may lead to it facing a dual challenge of replanting and insufficient subsidy funds, putting it in a dilemma.

In summary, analysts suggest short-term trading, while maintaining a 'neutral' rating on the industry in the next 12 months.