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Asia Biofuels Update: Malaysian Palm Oil Down but on Track for Weekly Gain

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Malaysian palm oil futures eased further on Friday as rival soybean oil weakened, although prices were still set for a weekly gain of around 0.5% amid a weakening local currency and following the implementation of Indonesia's new export policy.

The Bursa Malaysia Derivatives' July and August crude palm oil contracts edged lower by about 1% to 4,520 Malaysian ringgit ($1,145.77) per metric ton and 4,557 ringgit/mt, respectively.

Malaysian ringgit declined against the US dollar by 1.8% over the week, making shipments cheaper to foreign buyers, thereby supporting the export market.

In key buyer China, "palm oil importers have shown high enthusiasm for securing cargoes recently, and future arrivals of palm oil are expected to gradually increase," price reporting agency MySteel said.

The picture, however, is different in top importer India, where palm oil purchases remained below average levels in May despite some slight month-over-month increase to 551,000 metric tons from 513,403 mt, according to dealers cited by Reuters.

Subdued Indian buying came as palm oil's price differentials versus soybean oil narrowed, with soybean oil purchases reportedly surging 38% month over month to 497,000 mt in May, the highest in five months.

As a result, Malaysian exports during the period were estimated to have dropped between 8.8% and 15.5% from a month earlier, a Reuters survey showed. This offset the impact of lower production, pushing inventories higher for a second straight month.

Industry data will be released on June 10, according to the Malaysian Palm Oil Board website.

"In the short term, the market may continue to decline in search of support at lower levels, with participants largely awaiting the MPOB report for guidance," MySteel said.

The new single-gate export mandate in Indonesia, which aims to tighten oversight on shipments, was expected to boost competitiveness of Malaysian exports. A phased implementation of the new policy began on June 1.

However, demand shift from Indonesia to Malaysia has not yet materialized, as Indian buyers have already made ample purchases in Q1, according to Paramalingam Supramaniam, a director at Selangor-based brokerage Pelindung Bestari, as cited by Bloomberg.

Supramaniam reportedly said that Malaysia's exports may be put under pressure if Indonesian exporters offer more cargoes while the policy is still under its initial phase. A full implementation is targeted by Jan. 1, 2027.

Wang Tao, a Reuters market analyst, said palm oil prices have recently broken an upward trend, suggesting a possible start of a downward trajectory.

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