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Asia Biofuels Update: Palm Oil Retreats on Profit-Taking, Firmer Ringgit

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Malaysian palm oil futures eased on Tuesday as traders took profits after prices reached nearly three-week highs and as the local currency firmed, although strong exports and an expanding biodiesel mandate in Indonesia limited losses.

Ending a four-session rally, the Bursa Malaysia Derivatives' July crude palm oil contract retreated 0.61% to 4,582 Malaysian ringgit ($1,103.83) per metric ton. The August crude palm oil contract lost 0.60% to 4,613 ringgit/mt.

Futures once again moved in tandem with declining crude oil prices, which reduce viability of biofuels.

Nonetheless, Indonesia looks set to begin the July 1 rollout of its higher biodiesel blend mandate of 50%, or B50, raising the current blending ratio of 40%. This followed remarks from Minister of Energy and Mineral Resources Bahlil Lahadalia that B50 road tests have reportedly shown positive results.

Operators in the mining sector and other heavy industries, however, argue that higher palm oil blending may further exacerbate performance degradation of engines, which has already been observed with B40 diesel, Indonesia Investments reported.

If successful, the national rollout of B50 will reduce Indonesia's exportable supplies, potentially boosting Malaysian cargo competitiveness.

For the June 1-20 period, Malaysian shipments have reportedly risen between 19.1% and 25% from the previous month's levels, according to preliminary estimates by cargo surveyors.

A stronger local currency, however, could dampen export competitiveness, following a 0.2% recovery against the US dollar on Tuesday. Malaysian ringgit has so far weakened more than 4% this month.

Going forward, tighter fundamentals are expected to support the palm oil market, according to the Malaysian Palm Oil Council, particularly with rising biofuel use in Indonesia and weather-related supply risks.

The council expects crude palm oil prices to range between 4,400 ringgit/mt and 4,650 ringgit/mt in July. Iceberg X trader David Ng, as cited by Oilworld, projects prices to hold above 4,600 ringgit/mt.

For this week, futures are likely to trade in a rangebound manner but with a firm bias, according to financial services firm Phillip Capital.

"However, softer crude oil prices and profit-taking after recent gains may cap further upside," it said.

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