Indonesia Must Boost Palm Use to Support Prices, Yudhoyono Says

Indonesia, the world’s biggest palm oil supplier, should frame a policy to boost domestic consumption in biofuels to bolster prices, the president said.

“I’ve spoken with the agriculture minister and next month we can start quickly to formulate a policy,” Susilo Bambang Yudhoyono said in Bandung, Indonesia. Higher biodiesel output “will provide an incentive” for prices, he said.

Palm, used in everything from noodles to biofuels, entered a bull market this month and is heading for the first annual gain in three years on concern that production in Indonesia will trail analyst forecasts. Supply will expand next year, according to the Indonesian Palm Oil Association in Jakarta, which expects 3 million metric tons of the oil will be used by the country to produce biodiesel each year.

“Let’s say the contribution of palm oil for biodiesel can be increased not only to 3 million tons but maybe to 5 million tons,” Yudhoyono told a conference. “I hope the use of palm-based biodiesel will reach 20 percent of diesel consumption and if that can be reached we can have big domestic demand.”

The country in September raised the amount of palm-derived biodiesel that producers must blend into subsidized fuel to 10 percent from 7.5 percent, according to a regulation signed by Energy and Mineral Resources Minister Jero Wacik on Aug. 28. The requirement will be extended to non-subsidized fuel and industrial users in January and power plants will be obliged to use supply with a 20 percent blend.

Ministries, including those for energy, industry, trade and agriculture, as well as state-owned oil company PT Pertamina “must sit together to formulate” this policy, said Yudhoyono. “On prices, international cooperation with Malaysia and other countries is also important.”

Futures traded on Bursa Malaysia Derivatives in Kuala Lumpur rallied 8.9 percent this year to 2,656 ringgit ($822) a ton, heading for the first annual gain since 2010.

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