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Asia Biofuels Update: Palm Oil Extends Gains on Indonesia Export Control Plan

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Malaysian palm oil futures continued their rally on Wednesday, following reports that the Indonesian government will tighten export controls on some commodities, including palm oil, raising prospects of a supply squeeze.

The Bursa Malaysia Derivatives' June crude palm oil contract climbed by a further 1.23% to 4,596 Malaysian ringgit ($1,155.27) per metric ton. The July contract rose 1.25% to 4,628 ringgit/mt, to extend gains for a fourth consecutive session.

Shares of Indonesian palm oil producers slumped after reports that a state-backed agency will be established to manage raw material exports, such as palm oil and coal, with a view of increasing state revenue, Bloomberg reported.

The move could reduce exportable supplies, particularly as Indonesia begins raising its palm-based biodiesel blending to 50%, from the current 40%, in July.

With higher domestic consumption, Indonesia's exports are projected to decline by 1.7 million metric tons from April to September, the Malaysian Palm Oil Council reported Tuesday, citing data from Oil World Research.

During the same period, Oil World reportedly expects exports from Indonesia, Malaysia, and Thailand to fall by a combined 2 mmt. In Q1, shipments from the three palm oil producers grew by 1.9 mmt.

As domestic intake increases, "a sharp build-up in palm oil stocks is unlikely during the upcoming peak production season in Southeast Asia," MPOC said.

Prospects of tightening supply buoyed palm oil prices on Wednesday, but a sluggish demand from India and weaker export volumes in the first half of May continued to cap gains.

Nonetheless, MPOC said "palm oil remains the most competitively priced vegetable oil in India, while palm olein prices in Malaysia were also trading at a marginal discount to Argentine soybean oil, a pricing dynamic that should continue to support palm oil demand."

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