Malaysian palm oil futures were steady to lower on Wednesday, as a potential weakening in biofuels demand following a recent drop in crude oil prices weighed on sentiment.
The Bursa Malaysia Derivatives' May crude palm oil contract was flat at 4,420 Malaysian ringgit ($1,118.99) per metric ton in midday trade. The June contract slipped 0.13% to 4,460 ringgit/mt. Both contracts touched five-month lows earlier in the session.
"International crude oil prices are weakening, and the economic foundation for palm-oil producing countries to implement biofuel policies is being undermined," price reporting agency MySteel said.
To help ensure a stable supply of diesel, the Malaysian government on Tuesday reportedly agreed to increase its biodiesel mandate to 15% from the current 10%, with phased implementation to start with a 12% blend using existing biodiesel plants, according to multiple media outlets.
The country is currently mandating a 10% biodiesel blend for the transportation sector, and has introduced a 20% blend in few provinces.
Malaysia's move followed Indonesia's plan to raise its biodiesel mandate to 50% from the current 40% beginning July 1, and Thailand's decision to increase blending ratio to 7% from the current 5%.
Thailand has also tightened export controls for palm oil to boost domestic supply.
However, "Thailand's policy of restricting palm oil exports has already shown adverse effects, reflecting the possibility that expectations of tightening future palm oil supply may diminish as crude oil prices weaken," MySteel said.
In Malaysia, the reference price for palm oil was raised to $4,521.89 ringgit/mt in May from 3,935.19 ringgit/mt in April, despite recent declines in futures. Export duty correspondingly increased to 10% from 9.5%.
This could weigh on Malaysian export demand, which has so far shown a 30.7% to 38.9% month-over-month drop during the first 10 days of April, according to cargo surveyor estimates.
A possible increase in Indian purchases as buyers stock up ahead of seasonal demand could provide some upside.
Indian buyers reportedly cut their palm oil purchases last month due to high prices, with imports dropping to a three-month low of 689,462 metric tons in March, from 847,689 mt in February, according to the Solvent Extractors' Association of India.