Indonesian Palm Reserves Drop as Biodiesel Mandate Boosts Demand

  • Stockpiles fell 8.2% in June, more than 3.1% seen in survey
  • Biodiesel mandate helps boost demand for palm oil, Gapki says

Palm oil stockpiles in Indonesia fell for at least a sixth straight month in June as the world’s largest producer used more of the vegetable oil as a biofuel.

Inventories declined 8.2 percent to 1.8 million metric tons from 1.96 million tons in May, according to data released by the Indonesian Palm Oil Association on Tuesday. That compared with an estimate for a 3.1 percent drop in a Bloomberg survey last month. Exports of palm and kernel oils rose 1 percent to 1.78 million tons, while domestic consumption climbed 6.3 percent to 955,000 tons, association data showed.

Falling stockpiles in Indonesia may help sustain a rally in prices of the vegetable oil, used in everything from chocolate to cosmetics and biofuel. Futures in Kuala Lumpur entered a bear market last month as output recovered in Malaysia, the second-biggest grower, amid ample supplies of soybean oil. Prices have rebounded 13 percent from 2,186 ringgit a ton reached on July 12, the lowest since September.

“Biodiesel mandate in Indonesia has been implemented consistently,” Fadhil Hasan, executive director at the association, known as Gapki, said in the statement. “Consistency in implementing the biodiesel mandate will boost domestic demand of palm oil. This will make producers hold the stocks to meet domestic demand rather than exports.”

Palm oil futures for October delivery advanced as much as 1.5 percent to 2,475 ringgit a ton on Bursa Malaysia Derivatives, the highest level for the most-active contract since June 15. Futures were at 2,466 ringgit by the midday break.

Palm oil production in Indonesia climbed 7.7 percent to 2.69 million tons in June from May, the third straight monthly increase, Gapki data showed.

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