Palm Oil: Navigating Volatility Amid Duty Adjustments and Biofuel Demand

The palm oil market is caught in a tug-of-war between policy-driven supply dynamics and shifting biofuel demands. Recent adjustments to import duties in India and export levies in Indonesia have created a volatile landscape, but also a short-term trading opportunity for investors attuned to technical signals and policy impacts. Let's dissect how these factors are reshaping the sector and where the next rebound may emerge.

Policy Crosscurrents: India's Duty Cuts vs. Indonesia's Levies

India's May 2025 decision to slash the Basic Customs Duty (BCD) on crude palm oil (CPO) from 20% to 10% has sparked a seismic shift. The move widens the import duty gap between crude and refined oils to 19.25%, incentivizing traders to import cheaper CPO and refine it domestically. This has already boosted Indonesian CPO exports to India by 28% in April 2025, with further growth expected. The policy aims to reduce edible oil prices, ease inflation, and boost domestic refining capacity utilization—a win for companies like Rasi Seeds & Agro and Godrej Agrovet, whose stocks are poised to benefit from higher throughput.

Meanwhile, Indonesia's 10% CPO export levy (up from 7.5% in May 2025) adds to existing financial burdens, including the Domestic Market Obligation (DMO) and export tax. These levies, meant to fund biodiesel programs like the B40 mandate (40% palm oil blend), have raised total producer costs to $221/tonne. While this supports domestic biodiesel production, it risks undermining global competitiveness. Indonesian exporters now face a trade-off: either accept lower profit margins or reduce exports further.

Technical Catalyst: Palm Oil Prices at Critical Inflection

Palm oil futures (BMD Palm Oil) have been consolidating between 3,860-3,921 ringgit/tonne since early 2025, forming a key support/resistance zone. A breakout above 3,921 could trigger a rebound toward 4,200, while a breach below 3,860 might signal deeper weakness.

This range reflects conflicting forces: India's rising CPO imports (bullish) versus Indonesia's export constraints and global oilseed competition (bearish). Investors should monitor the RSI (14) on the BMD contract; a dip below 30 could signal an oversold condition, prompting a short-covering rally.

Biofuel Demand: The Hidden Bullish Catalyst

Indonesia's push for B40 biodiesel and plans to blend 3% palm oil into jet fuel by 2026 are critical tailwinds. The $2.14 billion biodiesel subsidy in 2025 ensures domestic CPO demand remains robust, even as exports face headwinds. This could tighten global supply, especially if Indonesian production declines further—output fell to 47.8 million tonnes in 2024, down from 50.1 million tonnes in 2023.

Competitive Oil Trends: Palm vs. Soybean

Palm oil's price advantage over soybean oil has narrowed due to Indonesia's levies, but it still holds a cost edge. As of June 2025, palm oil traded at $650/tonne, versus soybean oil at $850/tonne. This gap supports palm's competitiveness in food applications, but biodiesel demand will be the true litmus test.

Investment Strategy: Play the Rebound with Select Plays

1. Short-Term Trade: Buy BMD Palm Oil futures near 3,860 ringgit, targeting 3,921-4,200. Use stop-loss below 3,800.
2. Equity Exposure:
3. Rasi Seeds & Agro (NSE: RASISEEDS): India's leading refiner; +15% YTD as crude imports surge.
4. Adani Ports (NSE: ADANIPORTS): Benefits from higher throughput at Jawaharlal Nehru Port.
5. Wilmar India (NSE: WILMARI): Leverages access to Indonesian CPO and refining capacity.
6. Avoid: Pure-play trading firms reliant on refined imports, as the 19.25% duty gap erodes their margins.

Risks to Watch

• Geopolitical Trade Wars: Indonesia's export restrictions on palm waste (POME, UCO) could provoke retaliatory measures.
• Weather Risks: El Niño conditions may impact 2025-26 production in Malaysia and Indonesia.
• Biodiesel Overhang: If B40 adoption stumbles, CPO demand could falter.

Conclusion: A Volatile Market, but Opportunities Await

The palm oil sector is in flux, but the 3,860-3,921 ringgit support zone offers a high-reward entry for bulls. Pair technical analysis with exposure to India's refining boom and Indonesia's biodiesel ambitions. For now, the palm oil story remains one of policy-driven volatility—and selective upside.