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Asia Biofuels Update: Palm Oil Extends Downward Trajectory as Crude Oil Drops

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Malaysian palm oil futures slipped further on Tuesday as crude oil and rival soybean oil continued to decline, although losses were limited as exports grew based on preliminary estimates.

The Bursa Malaysia Derivatives' August crude palm oil contract edged lower by 0.77% to 4,516 Malaysian ringgit ($1,105.37) per metric ton. The September contract dipped 0.86% to 4,590 ringgit/mt.

Biofuel competitiveness has dampened following sharp declines in crude oil prices as tensions between the US and Iran eased.

Nonetheless, Malaysian exports remained resilient, with cargo surveyors reportedly estimating July 1-25 shipments to have risen between 8.1% and 15.9% from a month earlier. If sustained throughout the month of July, exports will continue its growth following a 6.2% month over month rise in June.

A weakening in the local currency has also supported exports by making them cheaper to foreign buyers. Malaysian ringgit eased against the US dollar by almost 3% in June and is on track for another monthly loss in July.

Near-term fundamentals, however, remain loose as high inventories in producing regions persist.

In the long term, market environment is expected to strengthen amid potential output cuts driven by the El Nino weather phenomenon, which is forecasted to peak between October 2026 and January 2027.

The Malaysian Palm Oil Board, as cited by Focus Malaysia, projects fresh fruit bunch yields to drop by 10% to 14% in the first year, and by a further 3% to 4% in the following years, if dry weather conditions persist.

MPOB reportedly projects Malaysian palm oil yields to decline 2% to 4% year over year in 2026, while prices could average from 4,300 ringgit/mt to 4,500 ringgit/mt. In the short term, it expects prices to remain above 4,000 ringgit/mt.

Price reporting agency MySteel said that "the market is likely to see weak rangebound trading under the pressure of sluggish domestic spot demand and long-position liquidation, maintaining a pattern of near-term weakness and far-term strength," but downside will be limited due to expectations of lower output.

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