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Asia Biofuels Update: Palm Oil Gains Support From Currency, Export Trends

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Malaysian palm oil futures rebounded on Tuesday as the local currency weakened, boosting competitiveness of exports, which have also shown a recovery in the first half of June.

The Bursa Malaysia Derivatives' July crude palm oil contract rose 1.84% to 4,493 Malaysian ringgit ($1,109.52) per metric ton. The August contract inched up 1.80% to 4,531 ringgit/mt, as prices diverged from the weakening energy market. The exchange will be closed on Wednesday due to a public holiday.

Malaysian ringgit eased against the US dollar by 0.32% on Tuesday, to end a three-session rally. This makes exports cheaper to international buyers, potentially increasing attractiveness of Malaysian shipments.

The country's export market is currently facing competition with rising Indonesian cargoes, as exporters rush to sell cargoes ahead of the full implementation of the new single-gate export policy next year.

Still, Malaysia reportedly logged a 9.6% to 23.8% month-over-month increase in shipments in the June 1-15 period, based on cargo surveyor estimates.

For July, the Malaysian Palm Oil Board lowered the crude palm oil reference to a level that keeps export duty at 10%.

In India, the government reportedly raised the base import price for crude palm oil by $14/mt and that of crude soybean oil by $4/mt, to reflect global price trends and foreign exchange rates.

Price differentials between the two vegetable oils have been narrowing, in favor of soybean oil.

In May, India's palm oil imports reportedly rose 7% from a month earlier to 549,356 metric tons, but volumes remained below average levels. Soybean oil purchases, on the other hand, jumped 37% month over month to 493,854 mt.

On the supply side, "ample rainfall in Malaysia's producing regions is supporting palm oil's entry into a seasonal production increase cycle," according to price reporting agency MySteel.

However, analysts expect that a developing El Nino weather phenomenon will reduce supply relative to previous season's levels, buoying prices in the H2 through 2027.

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