The Indonesian Palm Oil Association (GAPKI) expects last year’s decline in palm oil exports, which has been attributed to a volatile regulatory environment and disrupted output, to continue this year.

Indonesia, the world’s top palm oil producer, exported 30.8 million tons of palm oil products in 2022, down 8.5 percent from 33.7 million tons a year earlier.

A slight drop in palm oil production last year amid rising domestic consumption in the energy sector also contributed to the lower exports, GAPKI chairman Joko Priyono said in a media briefing in Jakarta on Wednesday.

“Biodiesel consumption [in 2022] jumped because the consumption of fuel rose after the pandemic,” he said.

To reduce diesel imports, Indonesia made palm oil a mandatory feedstock for fuel in 2016 under the B20 program that requires a mix of 20 percent biodiesel with 80 percent petroleum-derived diesel.

The mandatory biodiesel share was lifted to 30 percent under the B30 program, which went into effect at the start of 2020, and it is to be raised to 35 percent in February this year.

Girta Yoga, a research and development senior executive at the Indonesia Commodity and Derivatives Exchange (ICDX), said there were multiple scenarios to consider when it comes to predicting export volumes.

In the first scenario, the government may reduce the export volume multiplier ratio, given an expected decline in demand from the Indian and European markets.

On the other hand, it is possible the government will maintain the export volume multiplier ratio despite declining European and Indian demand, considering the possibility that exported commodities would be absorbed by other importing countries, such as China.

“Policy related to CPO export volume depends on the government policy, and the B35 program will obviously be considered in the decision-making process related to the CPO export volume,” he said on Friday.

The Trade Ministry has set the ratio of export volume for CPO and derivative products at 1:6, lower than the previous ratio of 1:8, a decision based on Trade Ministry Decree No. 12/2022, which stipulates the multiplier ratio to determine the export portion of CPO and its derivative products. The decree has been effective since January 1.

Malaysia’s benchmark crude palm oil futures contract for February delivery on the Bursa Malaysia Derivatives Exchange gained RM96 to RM3,874 a ton at Friday’s closing.

Meanwhile, the futures contract for March delivery gained RM116 to RM3,899 per ton.

Girta predicted that next week’s CPO prices would move in the range of RM3,900 to RM4,000 per ton. When met by a negative catalyst, prices could fall to the support level ranging from RM3,500 to RM3,600 per ton.

“It depends on the market indicators released at the beginning of the week, which include policy developments, particularly those related to exports and the biodiesel program, Malaysia’s CPO export data for January as well as the situation in major importing countries,” he told The Jakarta Post on Friday.

Credit rating agency Fitch Ratings has maintained its forecast for the average Malaysian benchmark CPO spot price at $850 per ton in 2023, significantly lower than the $1,175 per ton seen in 2022.

Benchmark prices rebounded to above $850 per ton in the fourth quarter of 2022, up from the end-September level of around $700 per ton.

The rating agency expects prices to strengthen further in the first half of 2023 to the $900 per ton level. The outlook for palm oil demand growth has been boosted by the Indonesian decision to increase the share of palm-oil-based fuel in diesel blends.

Last year, Southeast Asia’s largest economy produced 46.7 million tons of crude palm oil, down 0.4 percent from 2021. It also produced 4.5 million tons of palm kernel oil.

“This is the fourth year of stagnant output, while domestic consumption keeps rising,” Joko said.

“In 2023, we expect production to be stagnant again due to high fertilizer prices. Farmers have been using lower dosage, which would affect output this year.”

Indonesian palm oil stocks stood at 3.65 million tons at the end of 2022.