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Asia Biofuels Update: Palm Oil Rises With Crude Oil, Soybean Oil

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Malaysian palm oil futures firmed further on Tuesday, moving in tandem with crude oil and rival soybean oil, and as strong exports lent support.

The Bursa Malaysia Derivatives' August crude palm oil contract climbed 1.40% to 4,556 Malaysian ringgit ($1,116.61) per metric ton. The September contract gained 1.46% to 4,599 ringgit/mt.

Escalating tensions in the Middle East and the reinstated US blockade on Iranian shipping through the Strait of Hormuz buoyed global energy prices, improving the competitiveness of biofuels versus fossil fuels and boosting demand sentiment for vegetable oils used as biofuel feedstock.

Prices were also supported as preliminary estimates of Malaysian shipments showed further growth in the first 10 days of July, continuing the June uptrend.

Cargo surveyors cited by Trading Economics estimated shipments during the period to have risen by 1.6% to 5.1% from a month earlier. In June, industry data showed exports grew 6.2% month over month to 1.2 million metric tons.

Malaysia's export market is expected to strengthen after Indonesia introduced its higher 50% palm-based biodiesel blend mandate, or B50, Bernama reported, citing Malaysian Palm Oil Council chief executive Belvinder Sron.

Malaysia's market share will likely increase as Indonesia's domestic consumption increases, curbing exportable supplies to 48% of annual production from the previous 68% with B20, Sron reportedly said.

Indonesia's B50 policy and El Nino supply risks will underpin the global balance moving forward, according to the MPOC, likely pushing crude palm oil prices up between 4,300 ringgit/mt and 4,700 ringgit/mt in H2.

Hong Leong Investment Bank, as cited by The Star, also sees palm oil prices to remain firm in H2 amid prospects of tightening supply and robust demand.

Meanwhile, TA Research reportedly expects prices to remain range-bound in Q3 due to persisting high inventories, before strengthening in Q4 as production tapers down seasonally and as B50 gains traction.

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