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Asia Biofuels Update: Palm Oil Edges Higher on Strong Crude Oil, Weak Ringgit

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Strong crude oil prices and a weaker local currency helped buoy Malaysian palm oil futures, which rose around 2.5% on Monday, despite signs of slowing export demand.

Crude palm oil futures on the Bursa Malaysia Derivatives exchange extended gains for a second straight session, with the June and July contracts rising to 4,495 Malaysian ringgit ($1,129.88) per metric ton and 4,526 ringgit/mt, respectively, by midday trade.

The biofuels market continued to find support from rising energy prices, as the US and Iran war drags on. Improving economics of biodiesel versus gas oil supports Indonesia's and Malaysia's plan to increase blending of palm oil in biodiesel, as a move to boost domestic fuel supply.

On Monday, the Malaysian ringgit eased by a further 0.6% against the US dollar, making exports cheaper and more attractive to foreign buyers. This further supported the palm oil market, which has been recently pressured by weakening exports.

Cargo surveyor AmSpec Agri Malaysia, as cited by Trading Economics, estimated Malaysia's shipments in the first half of May to have declined from a month earlier by 16.5%.

This followed a 14.3% month-over-month drop in April, largely due to a reported decline in shipments to the Middle East and softer Indian demand.

In China, import cargoes were offered at profitable margins, but "consumption remained relatively weak," according to Chinese price reporting agency MySteel.

On the supply front, Malaysian production is expected to rise in the coming months following a seasonal low in Q1, providing a boost to the plantation sector, according to Affin Hwang Investment Bank, as cited by The Star.

April domestic palm oil output has already seen a recovery, surging 18.4% from a month earlier to 1.6 million metric tons.

Palm oil prices will find support from biodiesel policies supporting richer blends and from geopolitical tensions going forward, the investment bank reportedly said.

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$BKR
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