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Asia Biofuels Update: Palm Oil Drags Lower as Crude Oil Drops, Exports Weaken

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Malaysian palm oil futures declined on Wednesday as crude oil prices eased further following Iran-Oman talks to manage the Strait of Hormuz, and as preliminary shipment estimates pointed to weaker near-term demand.

As the market reopened following a public holiday, the Bursa Malaysia Derivatives' September crude palm oil fell 1.95% to 4,628 Malaysian ringgit ($1,149.50) per metric ton. The October contract dipped 2.02% to 4,761 ringgit/mt.

Malaysian shipments for the Aug. 1-25 period dropped 20% from a month earlier, according to Intertek Testing Services, as cited by Trading Economics. If the weak export trajectory is sustained throughout August, this will be the first time in three months that exports have declined month over month.

A strengthening local currency is making cargoes more expensive, thus dampening export competitiveness. Malaysian ringgit has so far firmed against the US dollar by around 1.4% this month.

In Indonesia, June exports reportedly fell from a year ago by 9.2% to 3.3 million metric tons, despite higher shipments to China and India.

The full implementation of a higher 50% biodiesel blend from October could further reduce the producer's exportable supplies, while a strong El Nino weather phenomenon may impact supply from year-end through 2027.

SD Guthrie, as cited by The Edge Malaysia, projects crude palm oil prices to trade between 4,600 ringgit/mt and 5,000 ringgit/mt through year-end, and to reach 5,200 ringgit/mt in Q1 2027 if drought persists.

In August and September, PhillipCapital Research reportedly expects prices to range from 4,400 ringgit/mt to 4,600 ringgit/mt.

In terms of demand, geopolitical tensions lifting crude oil prices are expected to support biofuel economics, while Black Sea disruptions curbing sunflower oil cargo arrivals will likely boost substitution demand for palm oil.

India's festival season from September to November could also buoy near-term demand, although a narrowing discount of palm oil to soybean oil will likely cap purchases.

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