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Surging Palm Oil Prices Throw a Spanner Into Indonesian Biodiesel Plans

The Age. Surging palm oil prices are causing Indonesian palm oil growers to scrap or amend their plans to make biodiesel from the oil.

Sinar Mas and China National Offshore Oil have halted a $5.9 billion biofuels plan, director Rafael Concepcion said yesterday. PT Bakrie Sumatera Plantations was “redesigning” a biodiesel project, president director Ambono Janurianto said.

Palm oil prices have more than doubled in the past year. Palm oil futures in Malaysia, the global benchmark, touched a record 4,486 ringgit (US$1,409) a tonne yesterday.

“Crude palm oil is very expensive now, it’s impossible for companies to make profit if it’s used as biodiesel,” said Alhilal Hamdi, head of Indonesia’s National Team on Biofuel.

“We are postponing it indefinitely as it’s economically not feasible,” Mr Concepcion said, referring to the venture with China’s third-largest oil company. “The price of the raw material alone is already higher than the price of biodiesel.”



Interesting example which shows that biofuel is not as simple as it might look. Whne you think about it palm oil has the highest yield / surface and requires very little processing. Ok the harvesting is manual but still. They might run in the same problem with ethanol, as they use a lot of natural gas and diesel fuel in the processing chain, the price of ethanol is tight to the price of others fossil energy and it is moving target to be competitive with oil.

Only the brazilian solved that shortcoming since sugar cane is a perenial plant , so requires little energy to grow, and they burn the bagasse to distillate the ethanol. So they are pretty much insensitive to the price of oil and natural gaz.

Harvey D

No surprise here. Those of us who thought that increased production of biofuels wouldn't have an impact on edible food price better have a second look.

Keep watching and see what will happened to all other edible food price as more and more stock is converted to biofuels.

Who will win? Our gaz guzzlers or our stomach?

People living in countries of abundance and guzzling 3000+ calories per day won't be affected that much (except for price) but the 2 billion with less than 1000 calories per day may have to go very hungry.


@ Harvey

Causality matters in this case. Increasing food prices affect the production of biofuels negatively. However, biofuels is not big enough to importantly affect food prices. The difference is important.

fred schumacher

Biofuels have become a favorite scapegoat lately, however, this price increase in palm oils is another indication that biofuels have become a victim rather than a cause of high prices.

Over the past few years, all commodities markets -- fuel, minerals, food -- have seen rapid increases in prices, in spite of only small mismatches between supply and demand. The one factor common to all three of these commodity areas is the role of investment funds.

Investment funds have jumped into commodities trading as a way to get high returns and as a hedge against a continuing falling dollar. We are seeing the creation of another bubble, like the dotcom and mortgage derivatives booms, built on speculative rather than real value. These investment funds are distorting the markets and a readjustment to real values will have to come. If past history is an indication, it will most likely come as a panic and crash.


Hey biodiesel is nice but what about biogasoline?? No one in the U.S. really has a diesel as a personal vehicle. I know they are "getting" quieter but I still have to worry about it caking up in the cold.

Does anyone know where there is any good info on biogasoline?? I know it exist but nothing to the degree of biodiesel pros, cons and what not... Thanks.

Patrick Mazza

Actually, the driving force for increasing palm prices is not biodiesel, which so far represents around one percent of global palm markets. It is food, the drive for healthy oils without trans-fats. If there's any food v. fuel competition, food is winning here. There is all too much inclination to demonize biofuels for something for which they are not responsible (see Treehugger above). The fact that food is the prime reason for palm growth underscores that we need sustainability criteria for all palm, not just palm that might be used for fuels.

Biofuels are the new kid on the block so the first to get blamed, the status quo doesn't want a diversification of fuel, it breaks their monopoly. The raw cost of grains/oils is only part of the picture, most foods are harvested, processed, packaged and transported sometimes 1000's of kms, then add all the layers of profits from each group. The end food price is tied to energy and fuel not what the farmer receives.

Harvey D

The price of commodities is driven by supply & demand. When millions of tonnes of grain-corn are used to produce fuel, what is left for food will cost much more.

As more agriculture products are used to produce fuel, food prices will jump upward.

Add to that increased demands from China and possibly India + a few bad crops here and there and you will have all the ingredients for a major boom in food prices. Wheat at $15+ a bushel will be considered very cheap.

If we don't electrify our vehicles, we may have to pay $10+ a gallon for fuel + 2 to 3 times more for food. Sun powered e-bikes may then become very fashionable with underweight North Americans. There's always a positive side or two to most situations.

We have to make the right choices. Corn ethanol to keep our gas guzzlers going is not one of them.


We have had relatively cheap fuels for so long there is a problem making cheap biofuels. Think of a gallon of 80 proof (40%) vodka being priced at $40 versus a gallon of 190 proof ethanol priced at $2.

Sure, there are lots of taxes, advertising and markups on the vodka, but the product is very similar. Now the price of corn goes from $3 to $5 per bushel and the ethanol makers are in a bind. They are expected to produce vast quantities at a cheap price. Not a good business to be in when your inputs are restricted to one type from essentially one source.

tom deplume

$1400/ton makes palm oil roughly twice the price of light sweet crude. Biofuels will never be cheap. Get used to it.

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