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Asia Biofuels Update: Palm Oil Up Despite Crude Oil Decline

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Malaysian palm oil futures rose on Thursday, driven by a rebound in exports and a weakening of the local currency, despite declines in crude oil and rival soybean oil prices.

The Bursa Malaysia Derivatives' July crude palm oil contract gained 0.42% to 4,520 Malaysian ringgit ($1,116.19) per metric ton. The August contract was up 0.22% to 4,549 ringgit/mt, as trading resumed after a public holiday.

Sharp declines in crude oil prices following a ceasefire deal between the US and Iran weighed on biofuel demand sentiment and pressured feedstock futures.

Nonetheless, prices still firmed as Malaysian ringgit weakened against the US dollar, boosting competitiveness of exports by making them cheaper to foreign buyers. Ringgit has so far eased 1% over the week.

Malaysian shipments also showed a recovery in the first 15 days of June, with cargo surveyors reportedly estimating a 9.6% to 23.8% month-over-month growth.

In top importer India, palm oil purchases are reportedly expected to increase to more than 600,000 metric tons this month, from around 549,000 mt in May, according to multiple media outlets.

In Indonesia, the government may scale back its proposed single-gate export policy following concerns from buyers and exporters, The Straits Times reported, citing officials familiar with the matter. The Indonesian government has yet to confirm the move.

The country is set to roll out a higher palm-based biodiesel blending mandate of 50% next month, reducing exportable supplies. At present, the policy is set at 40% blending ratio.

Supplies may further tighten as a developing El Nino weather phenomenon impacts yields.

Agronomist Lee Chin Tui, as cited by New Straits Times, said Malaysia's full-year palm oil production target of about 20 million metric tons may be challenging to achieve, and a Q3 benchmark of 1.8 mmt per month should be closely monitored.

Investment banks RHB and UOBKH expect the plantation sector to receive a boost from rising palm oil prices due to these factors, as well as from easing export interference in Indonesia, Business Times reported.

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