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Asia Biofuels Update: Palm Oil Rises on Higher Exports, Indonesia Biodiesel Push

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Malaysian palm oil futures partially recovered on Wednesday as exports grew and as Indonesia expands its biofuel mandate.

The Bursa Malaysia Derivatives' July crude palm oil rose 0.22% to 4,484 Malaysian ringgit ($1,103.56) per metric ton. The August crude palm oil contract gained 0.29% to 4,531 ringgit/mt.

A shipping survey agency cited by MySteel said Malaysian palm oil product exports for June grew 4.7% month over month to about 1.3 million metric tons.

Other cargo surveyors cited by Trading Economics estimated palm oil shipments for June 1-25 period to have risen between 10.6% and 11.1% from a month earlier.

A weakening Malaysian ringgit supported competitiveness of exports, by making them cheaper to foreign buyers. The local currency eased against the US dollar by a further 0.25% on Wednesday, following a 2.94% moderation in June.

However, demand for palm oil as a biofuel feedstock may dampen after crude oil prices dropped to pre-war levels following the US-Iran interim deal.

The recent declines in the energy market could also weigh on Indonesia's higher biodiesel blend mandate of 50%, or B50, rolled out today.

Lower crude oil prices coupled with stronger palm oil prices would require higher subsidies to sustain the B50 implementation, according to analysts cited by Reuters.

The government subsidizes its biofuel policies through palm oil export levies, which, if increased, will pressure profits of farmers due to resulting lower prices for fresh fruit bunches, the Jakarta Globe reported, citing palm oil smallholder association Popsi.

Analysts also see a potential shift in trade patterns once exportable supplies from Indonesia decline with higher domestic biofuel use.

Supplies may further tighten going forward if a developing El Nino weather phenomenon curbs palm oil yields, although the impact is "not immediate," The Star reported, citing Ahmad Parveez Ghulam Kadir, Malaysian Palm Oil Board director-general.

The MPOB reportedly expects palm oil prices to average between 4,000 ringgit/mt and 4,300 ringgit/mt this year, as prices rose in H1 due to strong energy market.

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