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Asia Biofuels Update: Palm Oil Extends Gains on Elevated Crude Oil Prices

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Malaysian palm oil futures rose for a third consecutive session on Wednesday, reaching their 20-week high, as rival soybean oil firmed and as crude oil continued its rally on the back of uncertainties around the Strait of Hormuz shipping.

The Bursa Malaysia Derivatives' September crude palm oil contract edged higher by 0.91% to 4,658 Malaysian ringgit ($1,144.19) per metric ton. The October contract rose 0.88% to 4,796 ringgit/mt.

Biofuel economics is improving due to elevated fossil fuel prices, and the discount of palm oil to gas oil is steepening to boost demand for palm oil, according to Sunvin commodity research head Anilkumar Bagani, as cited by Malaysian financial news platform BernamaBiz.

"Biodiesel economics have also remained broadly supportive relative to vegetable oils since the start of the West Asia conflict in February, supporting biodiesel blending demand and margins," the Malaysian Palm Oil Council said.

"This is particularly the case in Indonesia, where domestic crude palm oil prices are trading well below gasoil prices."

Palm oil futures extended gains despite mixed export trends for the Aug. 1-15 period. AmSpec Agri Malaysia reportedly estimated a 3.2% increase in shipments from a month earlier, while Intertek Testing Services assessed a 7.9% drop.

Black Sea disruptions due to escalating tension between Russia and Ukraine will impact exports of sunflower oil cargoes in the next one to two months, subsequently supporting palm oil demand, according to MPOC.

The council expects crude palm oil prices to remain firm above 4,600 ringgit/mt in September, "supported by tightening supply fundamentals and continued geopolitical disruptions to global trade flows."

In the longer term, El Nino-related supply risks and expanding biofuel policy in Indonesia are expected to support prices. The three-month transition period for Indonesia's higher 50% biodiesel blend is set to end in September.

Indonesia is also reportedly planning to launch an exchange for mineral and strategic commodities, which will likely include palm oil, nickel, and coal. The move will allow the nation to set its own reference prices for several products.

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$KMI