Periodic/Sector reports
Plantation: B50: Feedstock Secured; Funding Borrowed
Highlights
- B50 is live, and feedstock is still ample. Indonesia began mandatory 50% blending on 1 July under ESDM Decree 257/2026. GAPKI's May release, published in July on the usual two-month lag, shows closing stocks of 3.04m tonnes against 2.07m in January, with January-May production up 10.7% yoy.
- The levy base is shrinking amid a rising subsidy requirement. Cargo surveyor estimates put 1-25 July exports at 1.10m tonnes against 1.43m for 1-25 June, down 23.2%. With the levy held at 12.5% on CPO and the July reference price cut 2.8% to US$1,000.90/tonne, we estimate collections for the comparable window fell about a quarter to roughly US$109m.
- Maintain OVERWEIGHT, but we tighten our POGO risk threshold. We reiterate CPO assumptions of RM4,500/RM4,400 for 2026/27 and our preference for SD Guthrie and KL Kepong (both BUY). We now regard a palm oil – gas oil (POGO) premium of above US$70-85/tonne as the baseline level at which levy collections stop covering the monthly subsidy requirement.
Analysis
- Indonesia’s biodiesel subsidy funding is kept afloat by the geopolitical conflict in the Middle East. The POGO premium sits at +US$48/tonne against a 1,000-day mean of +US$146. On that basis, B50's monthly subsidy requirement amounts to roughly US$75m against a normalised US$230m. The compression is mostly driven by a rallying crude oil market: ICE gasoil is up 96.6% ytd amid the Hormuz disruption and the recent Jazan outage, while CPO has held firm.
Two conditions determine whether B50 can fund itself: - Indonesia’s Palm Oil Fund’s (BPDPKS) own test is only half-met. Chief Eddy Abdurrachman has said the present levy rate suffices, provided Brent holds near US$85/bbl and CPO near US$1,000/tonne. Brent settled at US$84.09, but only after a three-session fall of some 16%. According to Indonesia’s Institute for Essential Services Reform (IESR), CPO price should be 10x below Brent price for blending to be self-sustaining. By using the current Dumai FOB price assessment of US$1,185/tonne, the current ratio stands at 14.1x, well above the 10x no-subsidy line. - Our breakeven POGO is US$70-85/tonne. On a 1.57m tonne monthly feedstock draw and collections near US$129m, with 85% going to biodiesel, that is where the levy stops covering the subsidy. Our previous US$147 assessment was the long-run POGO mean and only holds if BPDPKS can draw on reserves.
Highlights
- B50 is live, and feedstock is still ample. Indonesia began mandatory 50% blending on 1 July under ESDM Decree 257/2026. GAPKI's May release, published in July on the usual two-month lag, shows closing stocks of 3.04m tonnes against 2.07m in January, with January-May production up 10.7% yoy.
- The levy base is shrinking amid a rising subsidy requirement. Cargo surveyor estimates put 1-25 July exports at 1.10m tonnes against 1.43m for 1-25 June, down 23.2%. With the levy held at 12.5% on CPO and the July reference price cut 2.8% to US$1,000.90/tonne, we estimate collections for the comparable window fell about a quarter to roughly US$109m.
- Maintain OVERWEIGHT, but we tighten our POGO risk threshold. We reiterate CPO assumptions of RM4,500/RM4,400 for 2026/27 and our preference for SD Guthrie and KL Kepong (both BUY). We now regard a palm oil – gas oil (POGO) premium of above US$70-85/tonne as the baseline level at which levy collections stop covering the monthly subsidy requirement.
Analysis
- Indonesia’s biodiesel subsidy funding is kept afloat by the geopolitical conflict in the Middle East. The POGO premium sits at +US$48/tonne against a 1,000-day mean of +US$146. On that basis, B50's monthly subsidy requirement amounts to roughly US$75m against a normalised US$230m. The compression is mostly driven by a rallying crude oil market: ICE gasoil is up 96.6% ytd amid the Hormuz disruption and the recent Jazan outage, while CPO has held firm.
Two conditions determine whether B50 can fund itself: - Indonesia’s Palm Oil Fund’s (BPDPKS) own test is only half-met. Chief Eddy Abdurrachman has said the present levy rate suffices, provided Brent holds near US$85/bbl and CPO near US$1,000/tonne. Brent settled at US$84.09, but only after a three-session fall of some 16%. According to Indonesia’s Institute for Essential Services Reform (IESR), CPO price should be 10x below Brent price for blending to be self-sustaining. By using the current Dumai FOB price assessment of US$1,185/tonne, the current ratio stands at 14.1x, well above the 10x no-subsidy line. - Our breakeven POGO is US$70-85/tonne. On a 1.57m tonne monthly feedstock draw and collections near US$129m, with 85% going to biodiesel, that is where the levy stops covering the subsidy. Our previous US$147 assessment was the long-run POGO mean and only holds if BPDPKS can draw on reserves.
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