Declining exports and weaker soybean oil prices weighed on Malaysian palm oil futures on Thursday, although stronger crude oil and prospects of tightening supply limited losses.
The Bursa Malaysia Derivatives' June crude palm oil contract fell 1.75% to 4,436 Malaysian ringgit ($1,115.05) per metric ton. The July contract also dropped 1.73% to 4,477 ringgit/mt.
Cargo surveyors cited by Trading Economics estimated Malaysian shipments in the May 1-20 period to have dropped between 13.9% and 20.5% versus a month earlier.
Lower Indian palm oil purchases, which reportedly slumped to a four-month low in April due to high costs, largely weighed on Malaysia's exports.
Nonetheless, the Malaysian Palm Oil Council said "palm oil remains the most competitively priced vegetable oil in India," potentially supporting demand going forward. The council, citing data from Oil World Research, said Malaysian shipments may rise by 400,000 metric tons from April through September.
A recovery in the local currency, however, may serve as a headwind, as it will directionally raise export prices. Malaysian ringgit inched up 0.2% against the US dollar on Thursday, although the current weekly trend shows a 0.5% moderation.
Going forward, a potential tightening in supplies, driven by Indonesia's biofuel policy and export controls, will support prices, analysts said.
The country targets to increase palm-based biodiesel blending to 50% from the current 40% beginning July. It also reportedly plans to establish a state-backed agency to manage raw material exports, such as palm oil and coal, with a view of increasing state revenue.
Malaysia will start raising the ratio of palm oil in biodiesel to 15%, from the current 10%, in June. Thailand, another palm oil producer, has also expanded biofuel use and tightened export controls to increase domestic supply.
This year, weather-related supply risks due to the potential development of an El Nino weather phenomenon in Southeast Asia are expected to support palm oil prices at around 4,400 ringgit/mt, according to MPOC.
Elsewhere, persisting fuel supply concerns have prompted the Australian government to assess the feasibility of introducing biofuel mandates, considering that the country is a major exporter of canola seed and tallow, according to multiple media outlets.