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Asia Biofuels Update: Palm Oil Rises, Heads for Weekly Gain on Strong Crude Oil

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Malaysian palm oil futures firmed further on Friday and were on track for a solid weekly gain, following sharp increases in crude oil prices and amid signs of softening output and expectations of bullish Indian demand.

The Bursa Malaysia Derivatives' August crude palm oil contract inched up 1.24% to 4,653 Malaysian ringgit ($1,123.14) per metric ton in midday trade, bringing weekly gains to 2.74%.

The September contract rose 1.35% to 4,726 ringgit/mt, and was headed for a 3.53% weekly rise.

"..stronger international crude oil prices have bolstered expectations for biodiesel feedstock demand," price reporting agency MySteel said, although this still has to be reflected in physical spot transactions.

On the supply side, Malaysia's output in the first 20 days of the month is estimated to have declined despite the ongoing peak production season, according to MySteel.

This improved near-term supply-demand balance, which is also currently supported by an anticipated recovery in Indian demand in Q3 ahead of Diwali.

Along with the potential yield impact of a forecasted strong El Nino weather phenomenon, these positive market drivers are pushing futures for a "credible" breakout, Reuters reported, citing Sandeep Singh, director of Kuala Lumpur-based trading firm The Farm Trade.

While Indian demand is set to rise, China's palm oil imports have declined in June to 176,769 metric tons, according to market intelligence provider SunSirs. The volume represents a 21.1% drop from a month earlier and a 49.5% plunge from the year-ago period.

The trend "marks a clear contraction in import volume," SunSirs said, which "will effectively reduce domestic market supply and provide strong bullish support for palm oil spot prices."

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