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Asia Biofuels Update: Palm Oil Up; Futures Head for Over 1% Weekly Rise

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Malaysian palm oil futures rose on Friday as crude oil and rival soybean oil firmed, and as a weaker local currency lent support, bringing weekly gains to more than 1%.

The Bursa Malaysia Derivatives' June and July crude palm oil contracts climbed about 1% to 4,445 Malaysian ringgit ($1,117.31) per metric ton and 4,472 ringgit/mt, respectively, and were set to reverse three weekly losses in midday trade.

Malaysian ringgit has been easing against the US dollar since the second week of May, and was on track for a 0.4% weekly moderation on Friday.

By making exports cheaper and more attractive to foreign buyers, a weaker currency could support Malaysian export demand, which has so far declined between 13.9% and 20.5% in the first 20 days of May, according to cargo surveyor estimates, cited by Trading Economics.

Malaysian cargoes may gain competitiveness once Indonesia moves ahead with its plan to impose state control over its exports of key commodities, including palm oil.

The government's plan has pressured Indonesian palm oil prices in recent days, with bidders withdrawing from tenders and sellers cutting prices to clear supplies prior to the enactment of the new rule, Bloomberg reported, citing traders.

Malaysian industry officials cited by Reuters said the move could cause a temporary disruption in the market, as participants adjust to new procedures during the transition period.

Coupled with Indonesia's expanded biofuel mandate that will take effect from July, the country's exportable supplies may shrink, further supporting Malaysia's export-driven palm oil industry, analysts said.

Southeast Asian supplies may also decrease if an El Nino weather phenomenon, potentially developing in the region toward the second half of this year, impacts productivity of palm trees.

The Malaysian Palm Oil Council expects prices to remain supported at around 4,400 ringgit/mt, largely due to weather-related supply risks.

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