The cost of transporting biomass products could surge in Malaysia in the second half of 2025 because of fuel subsidy cuts by the government, potentially pushing up market prices.
The Malaysian government is expected to reduce petrol and diesel subsidies in July, according to market sources. Malaysia first announced plans to reduce fuel subsidies in October 2024, mainly targeting businesses, high income earners, and foreigners, with the subsidy to be removed entirely for these groups. This will inevitably lead to rising costs of procuring biomass in Malaysia, namely palm kernel shells (PKS) and wood pellets.
PKS collection takes place at crude palm oil (CPO) mills, and the cargoes are then loaded on trucks, transported inland to loading ports, and exported to key buyers such as Japan. Wood residue is also sent to pellet manufacturing plants via trucks to be converted into wood pellets, before being delivered to loading ports. Cutting fuel subsidies that logistic firms currently enjoy will push up operational and transport costs, inflating the overall price of biomass exports from Malaysia. The subsidy cut may result in a $5-10/t hike in prices for Malaysian biomass, several market participants told Argus.
This comes during a period of weak demand for Malaysian PKS, because prices of Indonesian PKS have fallen since the start of June to almost level with that of Malaysian products. Buyers are switching to Indonesian PKS because it has higher calorific value and quality.
Meanwhile, demand for Malaysian wood pellets has been gradually increasing in 2025 because of higher buying interest from major wood-pellet consuming countries like South Korea and Japan, who are diversifying their sources. But higher prices caused by the reduction in fuel subsidies could still weigh on demand for Malaysian biomass in the coming months.
