Indonesia’s B50 biodiesel mandate to put pressure on vegoil freight rates through 2027

A narrow palm oil–soybean oil price spread to support the soybean oil trade

Indonesia’s palm oil exports started 2026 on a strong footing but weakened between February and April as palm oil prices moved closer to soybean oil prices. Stagnant production growth and high domestic consumption have reduced the country’s exportable surplus.

Although inventory drawdowns and firm international prices supported exports in May, we expect the price discount of palm oil relative to soybean oil to remain narrow in 2H26. The implementation of the B50 mandate is likely to tighten global palm oil supply, underpinning prices and limiting traditional price advantage of palm oil over competing vegetable oils.

Source: Drewry Maritime Research

A tight palm oil supply is expected to boost demand for alternative vegetable oils, particularly soybean oil. As a result, soybean oil exports from Latin America to Asia are likely to increase in 2H26, helping to offset some of the weakness in palm oil trade flows. Consequently, freight rates on South America-to-Asia routes are expected to remain relatively high despite a softer outlook for intra-Asian vegoil movements.

Rising biodiesel blending requirements to reduce Indonesia’s palm oil exports

Indonesia introduced palm oil-based biodiesel blending in 2008 under the B2.5 mandate and has steadily increased blending requirements to reduce its reliance on imported diesel fuel. Following the successful implementation of the B40 mandate in January 2025, the government has proceeded with the B50 mandate from 1 July 2026. The move is expected to increase domestic palm oil consumption for biodiesel production by an additional 3.0–3.5 million tonnes annually.

Source: Drewry Maritime Research

Over the past decade, the rapid growth of biodiesel demand has steadily reduced the palm oil volumes available for export, particularly during periods when production growth has lagged demand expansion. Biodiesel consumption accounted for 13% of Indonesia’s palm oil production in 2019, rising to around 27% in 2025. With the introduction of B50, this share is projected to increase to 31% in 2026 and further to 34% in 2027.

According to the country’s official data, the country will require 19.7 million kilolitres of palm oil-based biodiesel annually under the B50 mandate compared with 15.6 million kilolitres under B40.

Source: Drewry Maritime Research

As per Drewry’s estimates, biodiesel blending demand will increase from about 13.5 million tonnes in 2025 to 15.2 million tonnes in 2026 and 16.9 million tonnes in 2027. On the other hand, palm oil production in Indonesia is expected to remain stagnant during 2026-27, as a rise in production from new plantations will be offset by a decline in yields from old plantations. Accordingly, rising biodiesel blending demand, coupled with stagnant production, will hurt palm oil exports from 2026-27.

Based on Drewry estimates, biodiesel blending demand is anticipated to rise from around 13.5 million tonnes in 2025 to 15.2 million tonnes in 2026 and 16.9 million tonnes in 2027. In contrast, Indonesia’s palm oil production is expected to remain broadly stagnant over the same period, as gains from new plantations are likely to be offset by lower yields from ageing estates.

As a result, robust domestic biodiesel demand and limited production growth will significantly reduce Indonesia’s exportable surplus. Drewry estimates that the country’s crude and refined palm oil exports will decline from 23.6 million tonnes in 2025 to 21.2 million tonnes in 2026, before falling further to 19.8 million tonnes in 2027.

The resulting weakness in palm oil trade flows between Indonesia and major Asian importers, such as India and China, will reduce demand for vegoil carriers operating in Asia. This, combined with the rapid growth of the IMO-class coated tanker fleet, is likely to put downward pressure on intra-Asia freight rates through 2027.

However, reduced palm oil supply and higher CPO prices could encourage increased soybean oil imports into India from Latin America. As a result, the rise in long-haul trade volumes would partially offset weaker regional palm oil shipments and help limit the decline in tonne-mile demand for IMO-class tankers.