Palm oil prices rise as biodiesel demand grows

Industry experts anticipate an increase in biofuel demand, after crude oil prices jumped 2% yesterday.

As the Ukraine crisis intensifies, palm oil prices are on the rise. Analysts and traders predict there will be an increase in consumer demand for biodiesel despite the soaring cost, as biodiesel and palm oil blends may prove an effective and cheaper alternative.

Regardless of the current problems in Ukraine, palm oil prices have increased over the last 18 months as a result of the extremely dry weather in Malaysia and Indonesia. The ongoing drought this year in Brazil has also caused soy oil prices – a direct competitor of palm oil - to rocket.

Alan Lim, Kenanga's senior research analyst explains: 'Prices are also driven by soy-bean price uncertainty because of the drought in Brazil as well as an increased demand for biodiesel as Brent-oil prices are boosted by the Ukraine crisis making a palm-oil biodiesel blend attractively priced in comparison'.

Oiltek director Yong Khai Weng suggests that 'there may be a short-term spike in substitution with biodiesel'.

Malaysia and Indonesia account for 90% of the world's palm oil production and due to government commitments, their biodiesel demand has increased over the last year.

Despite domestic production increasing by 38%, Indonesia is expected to export the same amount of palm oil as it did last year.