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Asia Biofuels Update: Palm Oil Up on Rising Biofuel Demand

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Malaysian palm oil futures were steady to higher on Friday, bringing weekly gains to around 0.5%, as Indonesia's biofuel policy continued to progress, offsetting weak export demand in Malaysia.

The Bursa Malaysia Derivatives' October crude palm oil contract was largely unchanged at 4,768 Malaysian ringgit ($1,181.40) per metric ton. The November contract firmed 0.10% to 4,909 ringgit/mt.

The implementation of Indonesia's higher 50% biodiesel blend reportedly reached 75% to 80% of all fuel stations as of Aug. 31, with nationwide availability targeted by Oct. 1.

Higher biofuel demand could reduce exportable supplies, especially as drought-driven supply risks mount. Indonesian palm oil association Gapki projected the nation's 2027 output to decline to 56.8 million metric tons from the 2026 outlook of 58.5 mmt, media outlets reported.

In Malaysia, a developing El Nino weather phenomenon could also curb output, although current rainfall due to the monsoon may limit potential impact.

August shipments from Malaysia reportedly fell between 6.5% and 14.9% from a month earlier, based on cargo surveyor estimates. Demand weakened as buyers turned to cheaper soybean oil, while a stronger ringgit further dampened palm oil attractiveness.

Subdued export demand could further lift domestic stockpiles, which have already risen to a five-month high in July. The Malaysian Palm Oil Board is set to release monthly data on Sep. 10.

While there is near-term market support, "future focus should be on the realization of Indonesia's production figures, the implementation timeline of the B50 policy, and changes in Malaysian palm oil export data," price reporting agency MySteel said.

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