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Asia Biofuels Update: Malaysian Palm Oil Up on Firmer Crude Oil, Weaker Ringgit

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Malaysian palm oil futures rose on Monday as crude oil prices jumped following tit-for-tat attacks between Iran and Israel, and as the local currency weakened, boosting export attractiveness.

The Bursa Malaysia Derivatives' July crude palm oil contract gained 0.44% to 4,546 Malaysian ringgit ($1,116.98) per metric ton. The August contract was up 0.48% to 4,576 ringgit/mt.

Malaysian ringgit started the week soft, declining against the US dollar by 1% on Monday, to extend last week's losses of around 1.6%.

This makes shipments cheaper to foreign buyers, supporting exports, which were reportedly estimated to have dropped 8.8% to 15.5% in May from a month earlier.

A survey by Reuters showed that lower exports largely raised inventories for a second straight month in May, while official data from the Malaysian Palm Oil Board are set to be released on June 10.

Improving biofuels demand, resulting from higher crude oil prices, also supported the palm oil market.

In Malaysia, the recent implementation of a higher biodiesel blend of 15%, versus the previous 10%, could help maintain palm oil price stability due to increased domestic demand and reduced dependence on the export market, according to Federal Land Development Authority chairman Ahmad Shabery Cheek said, as cited by The Edge Malaysia.

Out of the country's 20 million metric tons of annual palm oil production, around 3 mmt are used for food products and 1 mmt are blended in biodiesel, leaving 15 mmt to 16 mmt for export, the official reportedly said.

In Indonesia, a higher biodiesel mandate of 50%, compared with the current blend of 40%, is targeted for implementation next month. This could reduce exportable supplies, at a time when the government has just tightened restrictions on exports by centralizing all shipment to a state-backed entity.

Going forward, a developing El Nino weather phenomenon, potentially impacting palm oil yields, is expected to support palm oil prices and boost the plantation sector, Kenanga Research, as cited by multiple outlets, said.

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