KUALA LUMPUR: Aggressive biofuel mandates in the United States and Europe are set to tighten global vegetable oil markets through 2027, driving structural demand growth even as feedstock constraints and trade barriers squeeze downstream players.
Speakers at the Palm and Lauric Oils Price Outlook Conference and Exhibition 2026 said policy more than pure market forces will shape the next two years for palm oil, laurics and oleochemicals.
Artem Hammerschmidt, head of vegoils and biofuels research at Ceras Analytics, said global biofuel policy is pointing to a significant supply-demand imbalance.
“Based on today’s biofuel policies, we estimate the market will require about 17 million tonnes more biodiesel and renewable diesel in 2026, and another six million tonnes in 2027,” he said.
He noted that US proposals for “super ambitious” renewable fuel targets for 2026 and 2027 could exceed domestic production capacity, forcing higher imports and tighter global competition for feedstocks such as soybean oil, canola and used cooking oil.
Margins for US biomass-based diesel remain negative at about 20 to 30 cents per gallon, but Hammerschmidt said they would need to improve substantially if production is to rise in line with policy targets.
In Europe, expanded mandates in road transport, maritime and aviation sectors are already lifting demand.
However, he cautioned that the projected increase of 2.4 million tonnes in 2026 alone “is never going to happen” under current feedstock constraints, suggesting compliance costs and biofuel certificate prices will have to rise further.
A key bottleneck is the availability of used cooking oil (UCO) and waste-based feedstocks. “The entire biofuel policy assumes waste oils are unlimited. They are not, at least not at current prices,” he said, noting that global UCO balances have already tightened sharply.
Indonesia, meanwhile, achieved a record biodiesel blend rate of 39.2% in 2025 after moving from B35 to B40. But fiscal pressure from the high palm oil-gasoil price gap has led the government to hold production quotas steady and raise export levies to fund subsidies.
“That means palm oil will stay in the country and not be available to importers,” Hammerschmidt said, adding that the move is not outright bearish but will limit global supply growth.
On the laurics side, Dr Sathia Varqa, managing editor at Fastmarkets, said coconut oil (CNO) continues to trade at a premium over palm kernel oil (PKO), often by US$400 per tonne or more, limiting substitution flexibility for oleochemical producers.
Feedstock sourcing has shifted from being cyclical to structural, said Samuel Chevigny, director of operations and broker at HBI and Oleoline Group.
“Access to feedstock is the main competitive advantage and the key limitation for producers,” he said.
From roughly 270 million tonnes of global vegetable oils and fats produced last year, only about 14 to 15 million tonnes were used to make fatty acids and fatty alcohols, just 5% to 6% of total output yet the sector faces mounting pressure.
Global fatty acid capacity stood at about 15.8 million tonnes last year, but production was only 9.9 million tonnes, implying a utilisation rate of just 62%. Chevigny warned that additional capacity, including around 780,000 tonnes of new fatty alcohol capacity, risks further margin compression.
“The demand is not strong enough to absorb all this new supply,” he said, adding that high feedstock prices are already squeezing fatty acid margins, with some producers operating at negative theoretical contribution levels.
Trade policies are adding another layer of uncertainty.
Europe’s anti-dumping duties have shifted imports away from Indonesia to Malaysia while raising costs for European buyers by as much as 20%, Chevigny said. In the US, new tariffs and trade cases could reshape import flows further.
Despite these pressures, demand for oleochemicals in personal care, food and pharmaceuticals remains resilient, broadly tracking global GDP growth. However, technical applications such as automotive and construction have softened.
Overall, speakers agreed that policy-driven biofuel demand will continue to underpin vegetable oil prices into 2026, even as downstream sectors grapple with tighter margins and regulatory uncertainty.
“The value is increasingly moving upstream,” Chevigny said, pointing to palm oil and feedstock suppliers as the primary beneficiaries of the evolving market dynamics.
