Malaysian palm oil futures climbed to their highest in a week on Wednesday, 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 $350 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 percent to close at 2,220 ringgit ($624) per tonne on Wednesday, 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. Cargo surveyors reported that Malaysian exports of palm oil products in January dropped 15 percent from a month earlier to around 1.11 million tonnes, as shipments to Europe, China and India waned.