COMMODITIES 2025: Biofuel policies seen boosting POME to top of feedstock price charts

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

From being seen as wastewater produced by palm oil mills to becoming one of the costliest biofuel feedstocks globally -- Palm Oil Mill Effluent, or POME, has come a long way in 2024 -- with Asian suppliers bullish on prices for 2025 due to pro-biofuel policies and overseas demand.

Asian spot prices of POME have climbed 50% by mid-December since S&P Global Commodity Insights first began assessing the Asian POME prices of both FOB Malaysia and FOB Indonesia at the start of 2024.

In comparison, prices of UCO FOB Straits rose by 13%, while UCO FOB North Asia was up by about 17% in the January to mid-December period, Commodity Insights data showed.

Much of this surge in POME prices came in the last quarter of the year after Indonesia, the world's largest palm oil supplier, significantly raised its export tax rate on the POME in October. This pushed the effective tax rate on POME to $92.38/mt in December, from a flat levy of $5-$25/mt earlier.

Indonesia also imposed a Domestic Market Obligation in October, intended to boost renewable fuel production in the country, aligning with new President Prabowo Subianto's vision to achieve food and energy self-sufficiency in the next four to five years.

In Malaysia, POME prices also increased, as a knock-on effect, aligning itself with Indonesia's upward trend due to the rise in its Crude Palm Oil, or CPO, price.

Malaysia's CPO price hit MR4,000/mt ($890.47)in September, and MR5,000/mt in November, primarily due to reports of lower production amid adverse weather and labor availability concerns, increase in export taxes and Indonesia's announcement of implementing B40 biodiesel mandate in 2025.

Market participants say that Indonesian POME will be pricier than Malaysian cargoes as the higher export levy, and now export permit requirements, have driven up the cost of exporting Indonesian cargos.

The US Department of Agriculture has estimated Indonesia will produce between 119 million mt to 178 million mt of POME in 2024, based on 47.5 million mt of CPO production.

Indonesia and Malaysia are the world's largest producers and exporters of POME, both being the top two global palm oil producers.

EU trade complications

EU's second-gen biofuel feedstock imports from Southeast Asia, especially PFAD and UCO have fallen but POME has risen from a comparatively smaller base in 2024 compared to the year before.

POME and palm fatty acid distillate, or PFAD, exports remain high on continued demand from overseas markets and a lack of incentives for local refiners to use biodiesel feedstocks other than CPO, the USDA said in an October report.

USDA expects Indonesia's exports of POME to reach a record high of around 2 million mt in 2024 due to continued demand from the EU, China and South Korea. Indonesia's POME exports were around 1.84 million mt in 2023, according to Commodity Insights trade data.

POME is classified as a second-generation biodiesel feedstock under the EU Renewable Energy Directive and is eligible for double counting toward biodiesel mandates in Europe. This is why it is coveted by biofuel makers in the EU because of its higher greenhouse gas savings credentials, which help them meet ambitious renewable transport fuel targets.

"Given its waste-derived feedstock status and delay in the EUDR, POME sales to the EU are likely to remain strong in 2025," a Singapore-based trader said.

EU's 2nd-gen feedstock imports	Jan-Aug 2024	Jan-Dec 2023
POME oil total imports	550,705	473,935
From Indonesia	376,759	339,429
From Malaysia	141,250	77,180
From others	32,696	57,326
UCO total imports	1,195,516	1,451,322
From China	313,092	345,740
From Malaysia	198,064	241,881
From others	560,283	660,129
PFAD total imports	1,514,413	2,017,392
From Indonesia	911,410	1,225,975
From Malaysia	298,557	487,104
From others	304,446	304,313

However, some EU members have raised concerns over fraudulently labeled POME exports from palm-producing countries in 2024, similar to the allegations against UCO exports from China.

In an EU Energy Council meeting that took place on Oct. 15, Ireland's Ministry of Transport, Eamon Ryan raised concerns about potential fraud in the supply of biofuels, primarily palm oil derivates including POME in the region. It was reported that POME-based biofuels consumed in Europe in 2023 exceeded the estimated global production amount of the feedstock.