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Asia Biofuels Update: Palm Oil Rebounds With 3% Weekly Gains

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Malaysian palm oil futures gained more than 3% over the week, to more than offset losses from a week earlier, as strong exports and expanding biofuel use buoyed sentiment.

Despite sharp declines in the energy market, the Bursa Malaysia Derivatives' July crude palm oil contract rose 1.86% to 4,594 Malaysian ringgit ($1,134.46) per metric ton on Friday, and posted a 3.59% weekly gain.

The August crude palm oil contract firmed 1.72% to 4,622 ringgit/mt, and rose 3.28% over the week.

Exports for the first half of June reportedly grew between 9.6% and 23.8% from a month earlier, potentially reversing a 14.5% drop recorded in May if sustained through the end of the month.

A weaker local currency continued to provide an upside for exports, as foreign buyers effectively pay lower price for the cargoes. Malaysian ringgit has retreated against the US dollar by about 2% over the week.

Rising demand is expected to be compounded by reducing exportable supplies, with Indonesia set to implement a higher biodiesel mandate of 50%, or B50, beginning July. The country is currently blending palm oil with diesel at a 40% ratio.

A road test for B50 has so far shown positive results, according to Energy Minister Bahlil Lahadalia, as cited by the Jakarta Globe. The minister was reportedly optimistic about the July 1 official rollout of the new biofuel policy, which will help reduce imports of conventional diesel.

As palm oil futures diverge from crude oil, analysts expect palm oil prices to strengthen with expanding biofuel use and amid prospects of lower supplies due to a developing El Nino weather phenomenon.

In Indonesia, farm-gate palm oil prices are also set to rise following a directive from President Prabowo Subianto to increase fresh fruit bunch prices in line with the global market and currency trends, the Jakarta Globe reported.

FFB prices declined last month after the government announced tighter oversight on export shipments through a new single-gate export policy.

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