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Asia Biofuels Update: Palm Oil Down on High Stocks, Weak Indian Demand

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Malaysian palm oil futures slipped on Wednesday, diverging from crude oil and soybean oil prices, as high inventories and weak Indian demand weighed on market sentiment.

The Bursa Malaysia Derivatives' August crude palm oil contract eased 0.20% to 4,520 Malaysian ringgit ($1,107.79) per metric ton. The September contract lost 0.24% to 4,562 ringgit/mt following a two-session rally.

Palm oil purchases by top importer India reportedly plunged to a 14-month low in June and declined 11% month over month, as demand weakened due to a narrowing discount of palm oil to other rival oils.

India primarily imports palm oil from Malaysia and Indonesia. Supplies to the country are not expected to drop despite Indonesia's higher 50% biodiesel blend mandate, or B50, National Energy Council member Satya Widya Yudha told Ani in an interview.

Yudha reportedly said that Indonesia aims to maintain its cooperation with India, and targets to meet both local and international demand by boosting domestic production.

Indonesia began a phased implementation of B50 on July 1. Analysts expect exportable supplies of palm oil to gradually decline toward year-end as more volumes are absorbed domestically.

In May, the country's exports saw a 25.1% year-over-year drop and a 28.1% month-over-month decline to around 2.0 million metric tons, The Edge Malaysia reported, citing Indonesian palm oil association Gapki.

As exports dropped, stocks reportedly rose 18.9% from a month earlier to 3.0 mmt, despite lower production.

In Malaysia, inventories also grew to their highest level since March at 2.5 mmt in June, according to the Malaysian Palm Oil Board data, as an increase in output offset a rebound in exports.

Iceberg X trader David Ng, as cited by Bloomberg, said persisting high stocks coupled with weak Indian demand are pressuring prices.

In Q3, palm oil's price upside will likely be capped by rising inventory levels, while a market strengthening could happen in Q4 as output declines and as B50 demand grows, according to TA Research, as cited by the Star.

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