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Asia Biofuels Update: Palm Oil Decouples From Crude Oil as Exports Rise

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Malaysian palm oil continued to diverge from a weakening crude oil market, as strong exports drove futures higher on Monday.

For a fourth straight session, the Bursa Malaysia Derivatives' July crude palm oil contract rose by a further 0.15% to 4,601 Malaysian ringgit ($1,108.41) per metric ton. The August crude palm oil contract inched up 0.17% to 4,630 ringgit/mt.

Intertek Testing Services, as cited by Trading Economics, reportedly estimated Malaysian shipments for the June 1-20 period to have grown 19.1% from a month earlier. This followed a 14.5% month-over-month drop in May, as per industry data.

From January through May, the country's total palm oil exports have risen 13.8% from year-ago levels, largely due to higher purchases by India, Kenya, and Vietnam, according to the Malaysian Palm Oil Council.

India's imports for June are reportedly expected to exceed 600,000 metric tons, after totaling around 549,000 mt in May.

Competitiveness of Malaysian exports is likely to improve as Indonesia implements its higher biodiesel mandate of 50% in July. This is an increase from the current blending ratio of 40%.

"This may encourage global importers to shift part of their sourcing towards Malaysia for greater supply stability," the MPOC said.

The council expects crude palm oil prices to range between 4,400 ringgit/mt and 4,650 ringgit/mt next month, driven by prospects of tightening supply from expanding biofuel use in Indonesia, as well as due to the developing El Nino weather phenomenon.

"Nevertheless, price gains may be capped by elevated vegetable oil inventories in key importing markets," the MPOC said, noting that stocks in India and China have risen to their highest levels in 17 months and five months, respectively, due to subdued near-term demand.

A weakening energy market has also put gasoil prices at discounts to palm oil in the futures market, reducing the viability of biodiesel, according to MPOC.

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