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Asia Biofuels Update: Palm Oil Retreats as Crude Oil Dips

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Malaysian palm oil futures slipped on Monday following sharp declines in crude oil prices, as the US and Iran made some progress on a proposed peace deal.

The Bursa Malaysia Derivatives' June crude palm oil contract lost 0.27% to 4,418 Malaysian ringgit ($1,116.93) per metric ton. The July palm oil contract fell 0.34% to 4,448 ringgit/mt.

Prices also dipped as the local currency rebounded 0.4% against the US dollar, making exports less competitive due to resulting higher prices for foreign buyers.

In the May 1-20 period, Malaysian shipments reportedly fell 13.9% and 20.5% from a month earlier, according to cargo surveyors cited by Trading Economics.

Going forward, Malaysia's export-driven palm oil industry may find support from Indonesia's new export policy, which aims to centralize some commodity exports into a state-backed agency to enhance oversight of shipments.

The Indonesian government reportedly said it will provide updates on the policy in the coming weeks.

The export plan has resulted in a steep decline in Indonesian palm oil fresh fruit bunch prices, to around 1,000 Indonesian rupiah ($0.06) per kilogram from 2,800 rupiah/kg, according to a palm oil farmer association cited by Reuters.

Traders, mills, and companies withheld purchases and temporarily halted sales due to unclear export mechanisms, largely affecting farmers in the region, the news agency reported.

As traders assessed the impact of the export overhaul, palm oil buyers reportedly bought spot cargoes at low rates despite a strengthening in futures last week, according to Bloomberg.

"Indonesia's palm oil export mandate policy is causing disruption and divergence in the global palm oil market," price reporting agency MySteel said.

S&P Global Ratings, as cited by Reuters, said the policy change could create macroeconomic uncertainties for Indonesia as both exports and government revenue decline.

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