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Asia Biofuels Update: Palm Oil Down; Weekly Loss Expected

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Malaysian palm oil futures slipped on Friday and were set to post a weekly decline, as crude oil prices dropped and as the local currency strengthened, making exports costlier to international buyers.

The Bursa Malaysia Derivatives' July crude palm oil contract eased 0.24% to 4,498 Malaysian ringgit ($1,105.19) per metric ton, bringing weekly losses to 0.62%. The August contract fell 0.22% to 4,541 ringgit/mt, and was set to lose 0.33% over the week.

Malaysian ringgit has strengthened against the US dollar for another session, partially offsetting losses earlier in the week. This dampens attractiveness of exports, which may further face pressure from cheaper and plentiful Indonesian cargoes.

Indonesian exporters may rush to sell cargoes ahead of the full implementation of the single-gate export system in 2027.

Nonetheless, Malaysia still saw a recovery in its exports in the first 10 days of June, with cargo surveyors reportedly estimating a 3.5% to 4.9% increase from a month earlier. This followed a 14.5% month-over-month drop in May to 1.1 mmt, according to Malaysian Palm Oil Board data.

Going forward, supplies from Malaysia and Indonesia could fall as a developing El Nino weather phenomenon may impact yields.

Historical trends show that a strong El Nino episode cuts Malaysia's fresh fruit bunch yields by 13% to 16%, according to CGS International, as cited by Bernama. Crude palm oil prices could reportedly rise 22% to 23%, as a result.

CGS International and price reporting agency MySteel expect prices to firm in H2.

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