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Asia Biofuels Update: Palm Oil Set for Weekly Gain Above 3% on Higher Exports, Biodiesel Blending

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Malaysian palm oil futures rose further on Friday, bringing weekly gains to more than 3%, driven by higher exports and Indonesia's progress in its planned B50 biodiesel program that is set to begin next month.

The Bursa Malaysia Derivatives' July crude palm oil contract climbed 1.66% to 4,585 Malaysian ringgit ($1,132.24) per metric ton and was set for a 3.38% weekly rise. The August contract firmed 1.63% to 4,618 ringgit/mt, and was on track to gain 3.20% over the week.

Cargo surveyors reportedly estimated Malaysian shipments to have risen between 9.6% and 23.8% in the June 1-15 period, relative to the previous month's levels. If the upward trajectory is sustained for the whole of June, that could cancel out a 14.5% month-over-month drop recorded in May, as per the Malaysian Palm Oil Board data.

A weaker local currency continued to provide upside for exports, as foreign buyers pay lower prices for the cargoes in dollar terms. The Malaysian ringgit retreated against the US dollar by more than 2% during the week.

Rising demand is expected to be compounded by a reduction in exportable supplies, with Indonesia set to implement a higher biodiesel mandate of 50%, or B50, beginning July. The country is currently blending palm oil with diesel at a 40% ratio.

A road test for B50 has so far shown positive results, according to Energy Minister Bahlil Lahadalia, as cited by the Jakarta Globe. The minister was reportedly optimistic about the July 1 official rollout of the new biofuel policy, which will help reduce imports of conventional diesel.

Analysts expect palm oil prices to strengthen as fundamentals tighten with expanding biofuel use and the prospect of smaller supplies due to a developing El Nino weather phenomenon.

In Indonesia, farm-gate palm oil prices are also set to rise following a directive from President Prabowo Subianto to increase fresh fruit bunch prices in line with the global market and currency trends, the Jakarta Globe reported.

FFB prices declined last month after the government announced tighter oversight on export shipments through a new single-gate export policy.

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