Commodities
Asia Biofuels Update: Palm Oil Slips; Monthly, Quarterly Losses Expected
Malaysian palm oil futures dropped on Tuesday and were on track for monthly and quarterly losses, as a weaker crude oil market dragged prices lower despite prospects of higher biofuel demand in Indonesia.The Bursa Malaysia Derivatives' July crude palm oil contract eased 0.95% to 4,480 Malaysian ringgit ($1,102.58) per metric ton in midday trade, bringing monthly and quarterly losses to 0.51% and 7.21%, respectively.The August crude palm oil contract retreated 0.86% to 4,519 ringgit/mt, and was headed for a 0.35% monthly drop and a 5.97% quarterly loss.Recent sharp declines in crude oil prices weighed on biofuel economics, pressuring feedstocks such as palm oil.Nonetheless, Indonesia is set to begin the implementation of its higher biodiesel blend of 50% from July 1, up from the current 40%, to help increase domestic energy supplies.The move, which could limit the country's dependence on imported diesel especially during supply chain disruptions such as the one caused by the US-Iran war, faces opposition from biofuel producers and farmers.The higher mandate will be difficult to meet without biofuel plant capacity expansion, Bloomberg reported, citing Catra de Thouars, vice chairman of the Indonesian Biofuel Producer Association.Thouars reportedly said that the country's biofuel plants should run at around 90% without unplanned outages just to produce B50.Palm oil smallholder association, Popsi, meanwhile, argued that a rushed implementation of the new policy may weigh on the profits of farmers, the Jakarta Globe reported.It reportedly highlighted that prices for fresh fruit bunches, which follow levy-deducted crude palm oil prices, may decline due to higher export levies imposed to subsidize biofuel policies.Popsi proposed to implement B30 as the base blend, with flexibilities to raise to B40 and B50 subject to production capacity, global prices, and domestic demand, the report said.In Malaysia, palm oil shipments remained robust, following cargo surveyor estimates that exports for the June 1-25 period have risen between 10.6% and 11.1% from a month earlier.The supply and demand balance may be affected as palm oil yields could drop, with the El Nino conditions likely to develop from July through early 2027, Focus Malaysia reported, citing the Malaysian Meteorological Department.Fresh fruit bunch yields could decline year over year by 12% to 22% if the anticipated strong El Nino this season mirrors the 1997/98 and 2015/16 episodes, the news agency said.
