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Asia Biofuels Update: Palm Oil Retreats on Bearish Industry Data

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Malaysian palm oil futures eased further on Wednesday as industry data showed a month-over-month decline in exports and a buildup in inventories despite lower production.

The Bursa Malaysia Derivatives' July crude palm oil contract lost 0.29% to 4,481 Malaysian ringgit ($1,101.01) per metric ton. The August contract fell 0.18% to 4,520 ringgit/mt.

Malaysian shipments in May weakened 14.5% from a month earlier to 1.1 million metric tons, data from the Malaysian Palm Oil Board showed. Cargo surveyors earlier estimated an 8.8% to 15.5% drop.

This largely contributed to a buildup in stocks, which rose for a second straight month by a further 1.6% to 1.3 mmt in May. Inventories remained higher than the previous year's level of 1.1 mmt.

Stocks grew despite a 7.0% month-over-month decline in production to 1.5 mmt, report showed.

Lower crude oil and soybean oil prices also pressured palm oil futures, which may see a recovery in H2 as El Nino-linked supply risks weigh on sentiment and as Indonesia begins implementing a higher biodiesel mandate of 50%, versus the current 40%.

MySteel agricultural editor Stacy Chen toldthat prices may range from 4,500 ringgit/mt to 5,000 ringgit/mt in H2, while the Palm Oil Strategic Policy Institute reportedly projects global prices to exceed 6,000 ringgit/mt during the period.

In Indonesia, fresh fruit bunch prices will rise 10%, following President Prabowo Subianto's directive to help boost margins of farmers, Antara reported, citing agriculture minister Andi Amran Sulaiman.

The increase is also in line with strengthening palm oil prices and a weakening local currency, Sulaiman reportedly said, noting that the government will ensure fresh fruit bunch prices return to normal levels following last month's plunge due to the new export policy. Prices across 70% of regions have already partially recovered, according to the minister.

Meanwhile, the US will exempt the country's palm oil from its planned 10% tariffs on Indonesian products, according to chief economic minister Airlangga Hartarto, as cited by Jakarta Globe.

The new import tax will likely take into effect after the current 10% global levy expires on July 24, the minister reportedly said.

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