Palm oil climbs as Indonesia considers raising biodiesel mandate

Palm oil climbs as Indonesia considers raising biodiesel mandate
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SINGAPORE (June 30): Palm oil resumed an advance as top producer Indonesia considers a plan to increase its biodiesel mandate, a move aimed at slashing its fuel import costs and soaking up bulging edible oil stockpiles. 

Futures for September delivery climbed as much as 1.5% to RM4,975 (US$1,129) a ton, reversing an earlier drop of 1.9%, before closing slightly higher. Indonesia may raise the required palm content in biodiesel to 35% from the current 30%, a ministry official said. This could tighten palm oil supplies. 

If the plan materializes, it will likely absorb an additional 1.5 million tons of crude palm oil on top of the 9.7 million to 10 million tons used for the current B30 mix, said Sathia Varqa, owner of Palm Oil Analytics in Singapore. 

Indonesia has ample stockpiles of around 7 million tons in May, so feedstock for biodiesel isn’t a problem, according to Varqa. “The main barrier would be a surge in crude palm oil exports limiting the feedstock supply,” he added.

Despite the price gain on Thursday, investors are still bearish about palm oil’s outlook due to rising production and lackluster demand. Prices tumbled more than 20% in June, posting the biggest monthly loss since 2008.

Indonesia is ramping up exports to cut its bloated inventories and production enters a seasonally-high cycle in the second half of the year. Rising shipments from Indonesia will challenge cargoes from Malaysia, with exports from the second-biggest grower falling more than 10% in June from the month before, according to cargo surveyors. 

Drivers

  • Indonesia mulls raising biodiesel mandate to cut fuel costs.
  • Malaysia June palm oil exports -10.4% m/m: Intertek.
  • Malaysia’s June 1-30 palm oil exports 1,179,545 tons: AmSpec.
  • Oil set for first monthly decline this year before OPEC+ meeting.
  • Wheat swings as market weighs impact of Russia troop withdrawal.
  • Crude palm oil 2nd-3rd month spread narrows to MYR62/ton.
  • Asia palm oil stocks erase 2022 gains on weak outlook: chart.
  • MYR falls amid growing inflationary pressures: Inside Malaysia

Prices

  • Palm for September delivery on Bursa Malaysia Derivatives +0.2% to close at RM4,912 a ton; futures -22% this month.
  • Soybean oil for December in Chicago -0.3% to 66.79c/lb.
  • Refined palm oil for September on Dalian Commodity Exchange +0.6% to 9,564 yuan/ton; soybean oil for September flat at 10,280 yuan/ton.
  • Soybean oil’s premium over palm ~US$359/ton vs avg of ~US$219 in past year: data compiled by Bloomberg.
  • Palm’s discount over gasoil ~US$108/ton vs avg premium of ~US$386 in past year: data compiled by Bloomberg.