Weakness Emerges in Palm Oil: Supply Prospects and Weather Pressure Prices

The palm oil market is facing fresh downward pressure, as evidenced by the recent declines across Malaysian Derivatives Exchange (MDEX) contracts. After a solid run-up earlier in the year on the back of bullish supply disruptions and robust demand, prices seem to be retracing as weather outlooks improve and stocks start to build. Traders are taking a cautious approach amid expectations for higher output and improved weather in key producing regions, and market participants are closely watching the evolving El Niño/La Niña conditions. Meanwhile, global economic uncertainty and fluctuating currency rates continue to add complexity to the price equation. Against this backdrop, recent trading volumes remain robust, supporting liquidity even as directional conviction fades. This report delivers a comprehensive analysis of the latest price action, the drivers at play, the weather’s role in crop yields, and fundamental trends shaping the palm oil market for the remainder of 2024 and into 2025.

📈 Prices & Market Sentiment

Contract	Previous Close (MYR/t)	Last Close (MYR/t)	Change (MYR/t)	Change (%)	Volume	Sentiment
Jul 25	3958.00	3944.00	-14.00	-0.35%	229	Bearish
Aug 25	3979.00	3975.00	-4.00	-0.10%	812	Neutral/Bearish
Sep 25	3986.00	3981.00	-5.00	-0.13%	2885	Neutral
Oct 25	3988.00	3983.00	-5.00	-0.13%	634	Neutral
Nov 25	3995.00	3986.00	-9.00	-0.23%	398	Bearish
Dec 25	4009.00	3998.00	-11.00	-0.28%	604	Bearish

Summary: The overall sentiment is tilting bearish as prices declined across most active contracts in the latest session. Volatility has moderated, but with negative momentum, traders are cautious about fresh buying.

🌍 Supply & Demand Drivers

• Indonesian and Malaysian Production: Field reports indicate a post-Ramadan uptick in mill activity with better-than-expected output in Malaysia for June and early July. Indonesia’s output is also rebounding following recent export restrictions.
• Stocks and Inventories: Malaysian palm oil inventories have risen, as per the Malaysian Palm Oil Board (MPOB), now estimated at over 1.8 million tonnes, up from 1.64 million tonnes last month.
• Demand: Indian imports have slowed as buyers wait for further price corrections. China’s imports remain steady but show downside risk if alternative edible oils become relatively cheaper due to favourable soybean oil and sunflower oil supplies.
• Currency Fluctuations: The recent strengthening of the Malaysian Ringgit (MYR) against the USD is slightly dampening export competitiveness.

📊 Fundamentals

Country	2023 Production (mln t)	2023/24 Stocks (mln t)	2023 Exports (mln t)
Indonesia	48.3	5.0	25.5
Malaysia	18.6	1.8	15.7
India (Import)	0.6	0.7	8.2 (import)
China (Import)	0.5	0.8	6.8 (import)

Key Insight: World palm oil balances are comfortable. Both Indonesia and Malaysia have increased ending stocks slightly since last month, cushioning the market against any minor weather shocks.

⛅ Weather Outlook & Crop Impact

• Southeast Asia: Recent thunderstorms and above-average rains in Sumatra and East Malaysia are supportive for yields. Weather agencies forecast average to slightly above-average rainfall for July, reducing drought risk from earlier El Niño concerns.
• La Niña Watch: The likelihood of a moderate La Niña during late Q3 2024 has increased, which could continue to favour palm oil production with timely rainfall but also raises risks of localised flooding and logistical issues.

Impact: Improved weather conditions are broadly price-negative, confirming trade expectations for a larger upcoming crop, but monitoring is advised as any excessive rainfall could shift sentiment quickly.

📆 Trading Outlook & Strategic Recommendations

• Short-term bias remains bearish: rallies are likely to be capped by rising inventories and improved weather.
• Watch for profit-taking at technical support near MYR 3940/t (active month). Sustained closes below this level may trigger further selling.
• Bullish surprise could emerge if weather turns disruptive or if India/China step up purchases unexpectedly.
• Longer-term hedging: Consumers may look to secure forward physical needs if the market tests MYR 3900/t or lower.
• Monitor currency volatility and global edible oil relationships for potential spillover risk and arbitrage opportunities.

🔮 3-Day Regional Price Forecast (Key MDEX Contracts)

Contract	Forecast Price (MYR/t)	Bias
Jul 25	3925 – 3955	Bearish/Sideways
Aug 25	3960 – 3980	Bearish/Sideways
Sep 25	3970 – 3995	Neutral/Bearish

Expect choppy trading amid ongoing weather headlines and inventory updates. Downside risk dominates, but quick reversals are possible if S&D news shifts.