The global biofuels landscape is fundamentally recalibrating, with a pronounced shift toward domestic sourcing of waste oils across mandated markets. Recent trade restrictions on UCO flows from China to the US, coupled with potential similar measures in Europe, are forcing a structural reorganization of supply chains that prioritizes local collection networks. Meanwhile, the strategic exemption of SAF feedstocks from China-EU restrictions signals that co-processing capacity emerging in Europe and the Middle East will likely satisfy Europe's SAF mandate without significant additional infrastructure. Despite production challenges forecasted for non-soy oilseeds in 2025, the overall global vegetable oil market appears well-positioned to meet biodiesel and renewable diesel production needs, particularly as fulfillment of these mandates faces substantial reduction in key markets like the USwhere policy shifts have already disrupted traditional market dynamics. The convergence of these factors suggests that 2024 may well have represented the peak year for conventional biodiesel and renewable diesel expansion, with 2025 marking the beginning of a more restrained growth trajectory focused on optimization rather than capacity expansion.
The 36th Palm & Lauric Oils Price Outlook Conference in Kuala Lumpur revealed critical challenges in palm oil production, with multiple presenters providing data on persistent yield declines. Lee Oi Hian from KLK demonstrated that palm oil yields have fallen from 3.63 mt/ha in the 1975-1999 period to just 3.28 mt/ha in 2024. Thomas Mielke of Oil World reinforced this concern, noting palm oil "has lost its growth dynamics," with annual growth projected to slow dramatically from 2.9 million tons annually in the previous decade to just 1.3 million tons in the coming years. This stagnation creates a fundamental contradiction with Indonesia's policy ambitions, as palm oil exports have already declined from 55.1 million tons in 2019 to 47.8 million tons in 2024. Notably, Mielke presented data showing world palm oil exports dropped from 55.4 million tons in Oct/Sept 2019/20 to 48.6 million tons in 2023/24—a nearly 7 million ton reduction that has fundamentally altered global vegetable oil trade flows.
Indonesia's B40 program dominated discussions at the conference, with Artem Hammerschmidt of Ceras Analytics providing detailed projections showing Indonesian biodiesel production would need to increase by 1.4 million tons in 2025 to meet targets, with further increases if B50 is implemented in 2026. However, he highlighted a critical financing gap, warning "If Indonesia extends subsidies onto non-PSO (Public Sector Obligation) users, BPDPKS will run out of finances by end-Q3 2025." This financial constraint exists alongside Dorab Mistry's direct challenge to lift Indonesia's palm plantation moratorium, arguing it is "wrong and cruel to subject 3 to 4 billion consumers in the developing world to higher and higher prices by restricting production under this Moratorium." Mistry's price forecasts were particularly noteworthy, projecting BMD palm futures to trade between 4000-4600 Ringgit through March 2025, before declining to 3600-4100 Ringgit from April to November as production increases. This price trajectory would significantly impact the economics of biodiesel production, especially as Hammerschmidt noted that "profitability of biodiesel production has significantly deteriorated due to the widening price premiums of palm oil, soya oil and rape oil vis-a-vis gas oil (diesel) prices."
The conference highlighted carbon intensity as the defining market differentiator for biofuels moving forward. Ji Yang Lum from S&P Global presented ICAO CORSIA's default lifecycle assessment showing that used cooking oil (20 gCO2e/MJ after ILUC adjustment), tallow, and distiller's corn oil have substantially lower carbon intensity scores than virgin oils like soybean (approximately 40 gCO2e/MJ) or palm oil (65-90 gCO2e/MJ depending on production methods). This dramatic difference explains the premium market status of waste-based feedstocks for sustainable aviation fuel. Simultaneously, policy evolution in the US has created immediate market disruption, with Hammerschmidt noting that the "change from the blender's to a producer's subsidy sent shockwaves through the US biofuel sector" resulting in a 15% production drop in Q1 2025 and a collapse in imports. S&P Global's data revealed how the "US renewable diesel supply ramp up supported by US credits (BTC, LCFS)" significantly impacted global UCO markets until "Imported UCO no longer qualifies for 45Z credit," demonstrating how quickly policy changes can reshape established trade flows. This policy volatility was further emphasized by Mistry's observation that "US soya oil use in US biofuels may expand and will ensure high CBOT futures," but only if supported by the current administration's policies.
The biofuels industry is entering a phase where idealistic policy mandates increasingly collide with economic realities and feedstock constraints. Thomas Mielke's blunt assessment that "admixture mandates will be reduced or will not be fulfilled in many countries" reflects a market correction that's already underway. For industry participants and investors, this signals an important strategic pivot away from capacity expansion toward securing stable, cost-effective feedstock supplies. The excessive focus on production targets has overlooked the self-correcting nature of commodity markets – as biofuel mandates face potential reduction, particularly in the US under the current administration, more vegetable oils will become available at competitive prices for producers still operating. This market elasticity suggests that 2025 may be marked less by feedstock shortages than by a recalibration of biofuel production to realistic levels, potentially improving margins for well-positioned market participants while separating aspirational policy rhetoric from implementable market solutions. The coming year will reveal which regions maintain genuine commitment to their mandates and which will quietly adjust expectations to match economic realities and feedstock availability. As the industry transitions from rapid expansion to consolidation, the peak of conventional biofuels growth appears to be behind us, with future growth increasingly concentrated in specialized sectors like SAF where regulatory support remains robust and differentiated by feedstock carbon intensity rather than volume-based mandates.
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