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Asia Biofuels Update: Palm Oil Climbs on Improving Biofuel Demand Prospects

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Malaysian palm oil futures firmed on Monday as rising crude oil prices boosted biofuel demand sentiment, while Indonesia remained on track to fully implement its 50% biodiesel blend next month.

The Bursa Malaysia Derivatives' October crude palm oil contract climbed 1.01% to 4,823 Malaysian ringgit ($1,192.48) per metric ton. The November contract rose 1.14% to 4,985 ringgit/mt.

Renewed tensions in the Strait of Hormuz lifted energy prices, improving viability of biofuels over fossil fuels.

Prices extended gains despite weak exports and high inventories in Malaysia. Cargo surveyors reportedly estimated August shipments to have dropped between 6.5% and 14.9% from a month earlier, with palm oil priced higher compared with rival soybean oil.

Oil palms were still in a seasonal production growth cycle in August, although the pace of growth had slowed, with data cited by SunSirs showing a 3.74% month-over-month softening in output.

"With production remaining high and exports declining in August, the market anticipated a further rise in month-end inventories, creating tangible supply pressure for the near term," market intelligence provider SunSirs said.

In Indonesia, the B50 biodiesel transition boosted long-term demand expectations, while the strong El Nino weather phenomenon threatened supply.

"The market has fully priced in the risk of El Nino-induced drought; institutional warnings regarding potential production losses next year due to extreme weather continued to drive up valuations for long-term contracts," according to SunSirs.

"Future focus lies on Indonesia's production realization, B50 implementation, and Malaysian palm oil export data," price reporting agency MySteel said.

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