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Asia Biofuels Update: Palm Oil Falls on Lower Crude Oil, Profit-Taking

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Malaysian palm oil futures retreated on Tuesday as crude oil prices eased and as traders took profits after prices reached near four-month highs.

The Bursa Malaysia Derivatives' August crude palm oil contract dropped 1.05% to 4,520 Malaysian ringgit ($1,104.57) per metric ton. The September contract fell 1.13% to 4,556 ringgit/mt.

US-Iran mediation efforts following renewed tensions pressured crude oil prices, dampening biofuel competitiveness and weighing on the palm oil market.

Reports of mixed export trends in Malaysia also pressured sentiment. AmSpec Agri Malaysia reportedly estimated a 0.9% month-over-month decline in July 1-20 shipments. Intertek Testing Services approximated a 4.1% rise.

In Indonesia, analysts expect that exports will decline as domestic consumption increases with the implementation of a higher 50% palm-based biodiesel blend.

Nonetheless, the Coordinating Ministry for Economic Affairs, as cited by Antara, said that B50 will not reduce the country's palm oil shipments as the government seeks to maintain a balance between domestic and international trade.

While Indonesia's exportable supplies remain uncertain, long-term supply tightening is still expected as hot and dry weather from a developing El Nino weather phenomenon will likely impact yields.

Malaysia's meteorological agency told Reuters that record-high temperatures in the country, exceeding the 1998 record of 40.1 degrees Celsius, are likely next year as the El Nino episode peaks between March and May 2027.

As weather-related supply risks will largely impact 2027 yields, Malaysia's 2026 output could remain strong, potentially reaching the 20-million-ton mark, a Bloomberg Intelligence report said. This could bring the country's domestic stocks to a record high this year as exports remain below production levels.

In the near term, bearish factors, mainly ample supply and weak demand, are expected to dominate the latter part of July, according to market intelligence provider SunSirs.

"Technical analysis indicates that palm oil prices remained at low-to-mid levels in early July, with room for further decline," the firm said, highlighting that "overall upward momentum is expected to slow" toward the end of the month.

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