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Asia Biofuels Update: Palm Oil Rises but Heads for Weekly Decline on Weaker Exports, Crude

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Malaysian palm oil futures rebounded on Friday as rival soybean oil firmed, but prices were on track for a weekly loss following declines in crude oil prices and preliminary reports of slower exports.

The Bursa Malaysia Derivatives' September crude palm oil contract firmed 1.13% to 4,645 Malaysian ringgit ($1,140.69) per metric ton, but was headed for a 3.05% weekly loss. The October contract gained 1.19% to 4,772 ringgit/mt, but was set to lose 3.28% over the week.

Weaker exports weighed on the market despite prospects of lower supply, after cargo surveyors reportedly estimated Malaysian shipments for the Aug. 1-25 period to have declined 11.4% to 20% from a month earlier.

"The palm oil production areas are gradually entering the seasonal production downturn, but weak export demand served as a counterbalancing factor, leaving the overseas market without a clear short-term direction," price reporting agency MySteel said.

In top buyer India, upcoming festivities could boost palm oil purchases but higher prices compared with rival soybean oil have been pressuring demand.

In key importer China, demand could be impacted as domestic inventories of major edible oils, including soybean oil, palm oil, and rapeseed oil, have risen above the historical three-year average to around 2.6 million metric tons as of Aug. 21, according to data cited by market intelligence provider SunSirs.

Analysts raised concerns about persistently high stockpiles in producing regions should near-term demand remain subdued. Malaysia's palm oil stocks reached a five-month high in July.

The supply and demand balance could improve once Indonesia's higher 50% biodiesel blend takes full effect in October, increasing domestic consumption and reducing available supplies to the export market.

A strong El Nino weather phenomenon, potentially developing in Q4, is likely to impact fresh fruit bunch production going forward, considering a typical six-to-nine-month lag. The Indonesian Palm Oil Producers Association, Gapki, expects the country's output to reduce by up to 5 mmt as early as next year, The Star reported.

Supply factors are likely to underpin prices, with the Malaysian Palm Oil Council projecting crude palm oil futures to remain above 4,600 ringgit/mt in September.

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Commodities

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