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Palm Oil, the unwanted biofuel feedstock, is trading at steep discount to Gasoil

Updated: Sep 24, 2023

Palm oil was already trading well below its 200day dwma and still looks like it is headed much lower. High stock levels ahead of peak production season Oct/Nov lead this writer to believe we could reach 3 Mil MT of stocks in Malaysia by end of year. Indonesia 35% mandate will not keep this from happening nor the slow moving Biodiesel mandate in Malaysia. Additionally, with the recent announcement by Russia of a ban of diesel exports, it is not hard to imagine that PME biodiesel will price itself into the gasoil pool in Q4. Investigation by now both EU and the US on now possible customs fraud on PME and possibly CPO having been used for fabricating UCO will cause further issues for exporters. This will slow down exports of both CPO and PME dramatically from Indonesia and Malaysia to China. Nevertheless, we can expect that once the arbitrage opens in Q4 that China will take most of this biodiesel product PME as it will flow under Asean Form E without any duties. It is hard to predict how large these volumes will be as it will depend on Gasoil levels but China has the capacity to take up to 100Kt per month.

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