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Asia Biofuels Update: Palm Oil Rises Over the Week; Monthly Decline Expected

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Malaysian palm oil futures rose for a third straight session on Friday, following an overnight increase in rival Chicago soybean oil, bringing weekly gains to more than 1%.

The Bursa Malaysia Derivatives' June crude palm oil contract was up 0.74% to 4,495 Malaysian ringgit ($1,136.39) per metric ton in midday trade. The July palm oil contract edged higher by 0.33% to 4,520 ringgit/mt.

However, futures declined over the month by around 1%, as weaker exports weighed on sentiment and as crude oil prices eased on peace deal hopes between the US and Iran.

Malaysian ringgit also firmed against the US dollar by a further 0.1% in May, following a 2% gain in April. This kept Malaysian export cargoes costlier for international buyers.

For the May 1-25 period, Malaysian shipments were estimated to have declined between 14.5% and 18.0% from a month earlier, according to cargo surveyors cited by Trading Economics.

Demand for Malaysian palm oil may increase as Indonesia tightens its oversight of shipments by routing exports of palm oil and other commodities to a state-backed entity.

In India, world's top palm oil importer, "refiners have already begun internal scenario planning for accelerated Malaysian palm oil sourcing, increased domestic crush of soybean and rapeseed, and renewed evaluation of South American soybean oil contracts," Globoil Intelligence said, as buyers start diversifying their procurement strategies.

While tightening global supply will support palm oil prices going forward, Indonesia's export revamp could weigh on margins and valuation of plantation firms, which have already seen a decline in shares following the announcement, analysts said.

Indonesia's new export policy is reportedly slated to begin in September, according to Trading Economics, while its mandate to increase palm-based biodiesel blending to 50% from the current 40% is set to start in July.

In Malaysia, the government will begin rolling out a new biodiesel blend mandate of 15% in June. This is up from the current blending ratio of 10%.

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