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Asia Biofuels Update: Malaysian Palm Oil Extends Losses on Weak Demand

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Weak demand continued to pressure Malaysian palm oil futures, which declined for a third straight session on Thursday to hit their lowest in more than two months, despite stronger crude oil and soybean oil prices.

The Bursa Malaysia Derivatives' June crude palm oil contract fell 1.04% to 4,363 Malaysian ringgit ($1,109.05) per metric ton. The July contract dropped by the same extent to 4,392 ringgit/mt.

The lack of demand from key buyers, India and China, primarily weighed on sentiment, according to Paramalingam Supramaniam, director at brokerage Pelindung Bestari, as cited by Reuters.

The discounts of palm oil to competing oils have eroded following a war-driven surge in prices, prompting Indian refiners to turn to rival soybean oil and sunflower oil.

In April, industry data reportedly showed that India's palm oil imports dropped 26% month over month to their lowest in four months at 513,403 metric tons. Showing an opposite trend, soybean oil purchases rose 25% to 360,350 mt and sunflower oil shipments jumped 121% to their highest in 22 months at 434,240 mt.

India typically buys palm oil from Malaysia and Indonesia, and sources soybean oil and sunflower oil from Argentina, Brazil, Russia, and Ukraine.

In China, near-term purchases of palm oil have remained weak, although the market was seeing an appetite for forward buying.

"Domestically, basis levels remain persistently weak, and movement of goods is slow," Chinese price reporting agency MySteel said, adding that traders were mainly looking for December-loading cargoes.

With this week's downward movement in palm oil prices, MySteel said that "vegetable oils have shown slight divergence, with palm oil leading the market decline."

Going forward, analysts said that the market may find support from expanding biodiesel programs in Indonesia and Malaysia, geopolitical tensions in the Middle East, and El Nino-related supply risks.

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