TH: Palm oil climbs to 1-week high on biodiesel hopes
Malaysian palm oil futures climbed to their highest in a week today, tracking cues from crude markets and as investors pinned hopes that Indonesia's plan to raise biodiesel subsidies will boost its consumption.
Indonesia's government on Tuesday proposed a threefold increase in its biodiesel subsidies to 5,000 rupiah (40 US cents) per litre from 1,500 rupiah, aimed at protecting the top producer's fledgling biofuel industry against lower crude prices.
While the proposal still needs parliamentary backing before becoming law, analysts are optimistic that higher subsidies will make producing and consuming biodiesel more economic.
"We view this proposal as a potential game changer for the biodiesel industry in Indonesia," said CIMB analyst Ivy Ng, who estimates that the increase will translate to a subsidy of around US$350 (RM1,249) per tonne for biodiesel producers and fuel distributors.
"The higher subsidy will significantly raise the CPO-biodiesel breakeven price level and revive biodiesel consumption."
The benchmark April contract gained 2.5% to close at RM2,220 (US$624) per tonne today, with prices at their highest since January 28.
Total traded volume stood at 66,186 lots of 25 tonnes, above the average 35,000 lots.
Traders said the earlier jump in crude prices lifted the Malaysian palm contract which resumed trade on Wednesday.
Markets were closed on Monday and Tuesday for public holidays.
"Positive commodity and energy market sentiment over the two days of Bursa Malaysia closure likely to stoke further gains in palm future prices today," said a trader with a local commodities brokerage in Malaysia.
Oil prices rose in Tuesday US trade after a tumbling dollar sent most commodities rallying, bringing crude's four-day rise to about 19% – its biggest such advance since January 2009.
However, prices later slipped on renewed concerns over global demand and swelling stocks, with Brent 53 cents lower at US$57.38 a barrel by 0911 GMT (5.11pm Malaysian time) and US crude down 88 cents to $52.17.
Lacklustre export demand to key buyers, coupled with a strong ringgit, however, may limit gains.
Cargo surveyors reported that Malaysian exports of palm oil products in January dropped 15% from a month earlier to around 1.11 million tonnes, as shipments to Europe, China and India waned.
Meanwhile, the ringgit hit a more than three-week high of 3.546 per dollar today, tracking rallies in oil prices and commodity currencies, and making the palm-priced feedstock more expensive for overseas buyers. – Reuters, February 4, 2015.
