Malaysian palm oil futures rose further on Tuesday as stronger crude oil prices continued to boost biofuel demand sentiment, but high inventories and weak exports capped gains.
The Bursa Malaysia Derivatives' October crude palm oil contract firmed by a further 0.61% to 4,746 Malaysian ringgit ($1,166.44) per metric ton in midday trade. The November contract gained 0.74% to 4,886 ringgit/mt.
Attractiveness of palm oil as a biodiesel feedstock improved as fossil fuel prices continued to rise on persisting tensions in the Middle East.
However, price gains were capped as Malaysian exports remained subdued, with cargo surveyor estimates reportedly showing an 11.7% to 17.5% month-over-month drop in Sep. 1-10 shipments. In August, data from the Malaysian Palm Oil Board showed that exports fell 7.5% from a month earlier, ending two consecutive months of growth.
Malaysian inventories also remained high, with end-August stocks reaching an eight-month peak due to weak exports and higher production.
"Increased production combined with weak exports has led to continued inventory accumulation, resulting in loose supply conditions," commodity data group SunSirs said, noting that the stock buildup is a short-term bearish factor that weighs on near-month futures.
Although the high seasonal production cycle is gradually tapering off, "weak export demand provides an offset, leaving the short-term overseas market without a clear direction," price reporting agency MySteel said.
Nonetheless, SunSirs highlighted that the current inventory levels will not change the long-term outlook, and the market structure of "weak near-term, strong long-term" is likely to remain.
"Long-term pricing continues to be driven by two major bullish factors: long-term consumption from Indonesia's B50 biodiesel mandate and the potential for El Nino-induced drought to reduce next year's output," the firm said.
Indonesia is on track to fully implement its B50 policy by Oct. 1 and is assessing a further increase to B60 next year.