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Asia Biofuels Update: Malaysian Palm Oil Firms on Stronger Soybean Oil

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Malaysian palm oil futures rose further on Tuesday, moving in tandem with rival soybean oil, despite a drop in crude oil prices and weakness in exports.

The Bursa Malaysia Derivatives' June crude palm oil contract inched up 1.25% to 4,547 Malaysian ringgit ($1,142.95) per metric ton. The July contract climbed 1.28% to 4,580 ringgit/mt, to extend gains for a third straight session.

Palm oil and soybean oil prices diverged from crude oil, as China's commitment to buy $17 billion worth of additional US farm goods through 2028 buoyed market sentiments and offset impact of geopolitical developments.

Prices also rose despite initial estimates that export demand dropped 16.5% month over month in the first half of May, according to data by AmSpec Agri Malaysia, as cited by Trading Economics.

In India, top importer of palm oil, the government was considering to raise import duties on vegetable oil to help boost domestic industry, which could in turn weigh on Malaysia's and Indonesia's palm oil export markets, Bloomberg reported. India imports around 60% of its edible oil needs.

A sustained softening of the local currency could help improve export attractiveness by making cargoes cheaper to foreign buyers. Malaysian ringgit has been declining against the US dollar over the last two weeks.

On supply front, Malaysia's palm oil output for the May 1-15 period reportedly dropped 16.4% from a month earlier, as fresh fruit bunch yields fell 12.5% and oil extraction rates slowed 0.75%, price reporting agency MySteel reported, citing industry group data.

"The production decline exceeded market expectations," MySteel said. Analysts were expecting production would increase in the coming months, following a seasonal low in Q1 and prior to potential development of an El Nino weather phenomenon in Q3 or Q4.

CIMB Research, as cited by The Star, projects fresh fruit bunch yields to rise between 13% and 15% in Q2. Affin Hwang Research reportedly expects output to gradually rise through Q3, although full-year production may remain largely flat or come in lower than 2025 levels.

The research firms expect that palm oil prices will remain supported by biodiesel mandates and geopolitical tensions, the news agency reported.

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