Asia Biofuels Update: Malaysian Palm Oil Up on Rising Biofuel Demand
Malaysian palm oil futures edged higher on Thursday, as weakening exports were offset by a potential increase in domestic demand due to higher biodiesel blending.The Bursa Malaysia Derivatives' May crude palm oil contract rose 0.36% to 4,442 Malaysian ringgit ($1,123.70) per metric ton in midday trade. The June contract inched up 0.04% to 4,474 ringgit/mt.For the first half of April, Malaysian shipments were estimated to have dropped 34% from a month earlier, according to cargo surveyors cited by Trading Economics.Malaysia's move to increase export duty to 10% in May from 9.5% in April, following a rise in palm oil reference price, could further dampen export competitiveness.The government's decision to raise biodiesel blending from 10% to 12%, and then to 15%, will boost local demand.However, this did not lift market sentiment significantly, as traders were expecting an increase to at least 20%, Oilworld reported, citing Sunvin Group's head of commodity research Anilkumar Bagani.The first 2% increase in blending ratio could boost biodiesel demand by 130,000 metric tons per year, and the next 3% jump could add another 200,000 mt, according to Malaysian Palm Oil Board director-general Ahmad Parveez, as cited by The Star.Parveez told the news agency that the planned phased implementation was a "measured" approach to avoid additional fiscal burden, while utilizing existing blending facilities.The 15% mandate could reportedly absorb 1.8 million metric tons of crude palm oil, equivalent to 9% of total domestic production of 20 mmt.Malaysia's move followed Indonesia's plan to raise its biodiesel mandate to 50% from the current 40% beginning July 1, and Thailand's decision to increase blending ratio to 7% from the current 5%.The market has already priced in bullish sentiments from expanding biofuel use, according to price reporting agency MySteel.With export volumes declining and production set to increase in the coming months, "palm oil is expected to trade in a range-bound and weak manner in the short term," the agency said.