MDEX Palm Oil Futures Rally Despite Heavy Stocks and Weak Exports

MDEX palm oil futures extended their rebound on 16 June, gaining around 2% across the curve as traders priced in tighter forward supplies and weather risk, despite persistently heavy Malaysian inventories and soft export demand. Prices are grinding higher into the peak demand window, supported by weaker production data and strengthening expectations of El Niño-related weather volatility in Southeast Asia. At the same time, Malaysian stocks have climbed to multi‑year highs as May exports slowed sharply, tempering the upside and keeping the forward curve only modestly upward‑sloping. The market is currently caught between bullish supply signals and bearish inventory and demand indicators, resulting in choppy but upward‑biased trade where weather headlines and monthly MPOB data are likely to dominate near‑term price action.

Prices & Forward Curve

MDEX crude palm oil contracts on 16 June 2026 closed about 1.8–2.0% higher day-on-day across the actively traded strip, with the nearby July 2026 contract settling at 4,501 MYR/t (≈960 EUR/t at 4.7 MYR/EUR). The Aug and Sep 2026 contracts finished at 4,539 and 4,574 MYR/t respectively (≈965–975 EUR/t), while Nov 2026 ended at 4,636 MYR/t (≈987 EUR/t), confirming a mild contango along the 2026 curve.

Further out, Jan–Mar 2027 contracts traded around 4,678–4,686 MYR/t (≈995–1,000 EUR/t), only slightly above nearby values, signalling that the market expects relatively well-supplied conditions but is willing to pay a modest premium for forward weather and policy risk. Intraday ranges remained wide (around 200 MYR/t for front months), underlining persistent speculative activity and sensitivity to fresh data.

Supply, Demand & Inventories

On the supply side, Malaysian Palm Oil Board data for May 2026 show production at about 1.52 million tonnes, down 7% month-on-month and 14% year-on-year, confirming a seasonally weak and below‑trend output profile. Despite this, end‑May stocks rose further to roughly 2.43 million tonnes, up more than 5% versus April and over 20% above last year, underscoring how soft exports and moderating domestic use have outweighed the production drop.

Exports from Malaysia in May declined by about 14–15% month-on-month and more than 20% year-on-year to roughly 1.11 million tonnes, as major buyers in India and China drew down existing inventories and reacted to relatively expensive palm oil versus rival soft oils. Domestic disappearance softened slightly month-on-month but stayed modestly above last year, supported by ongoing biofuel demand and stable food usage. Overall, the global balance looks less tight than price action suggests, with the current rally driven more by forward-looking risk than by nearby shortage.

Fundamentals & External Drivers

The key macro fundamental is the emerging El Niño signal. Recent bulletins from WMO and NOAA indicate around an 80% probability of El Niño conditions during June–August 2026, with a decent chance that the event reaches at least moderate strength. For palm oil producers in Malaysia and Indonesia, a stronger and prolonged El Niño typically raises concerns about drier conditions and potential yields losses later in the year, even if immediate field conditions are still adequate.

At the same time, expectations for slightly lower Malaysian CPO production in 2026 (around 19.5–19.8 million tonnes versus 20.28 million tonnes in 2025) point to a structurally tighter medium‑term supply backdrop. However, this is being counterbalanced in the short run by ample domestic stocks and improving vegetable oil availability elsewhere, particularly in sunflower and rapeseed, which cap palm oil’s ability to stage a sustained break higher without a clear weather shock or renewed demand surge.

Weather Outlook in Key Regions

Short-term weather in key palm areas of Malaysia and Indonesia remains broadly favourable, with regular rainfall still supporting current crop development. The main risk lies in the forecasted transition to stronger El Niño conditions through Q3, which could lead to reduced rainfall and higher temperatures over parts of maritime Southeast Asia later in 2026.

For now, weather models do not yet indicate an imminent severe moisture deficit, but risk premia are building into deferred contracts, as reflected in the modest contango on MDEX beyond late 2026. Market participants will closely monitor updated ENSO guidance and high‑frequency rainfall data through July–September, a crucial window for setting yield potential into 2027.

Trading Outlook & Strategy

• Short-term (next 1–2 weeks): With front-month MDEX contracts near 4,500 MYR/t (≈960 EUR/t) after a sharp daily gain, scope for additional near‑term upside looks limited unless fresh weather stress or stronger export data emerges. Momentum traders may look to fade rallies towards 4,600–4,650 MYR/t (≈980–990 EUR/t) in the absence of new bullish catalysts.
• Medium-term (Q3 2026): Given below‑trend production and rising El Niño risk, cautious longs in deferred 2026/early‑2027 contracts can be justified as a hedge against yield losses, but should be sized conservatively due to heavy current stocks and fragile import demand.
• Physical buyers: Importers with uncovered Q3/Q4 requirements may consider layering in coverage on price dips back towards or below 4,400 MYR/t (≈935 EUR/t), while avoiding chasing short‑term weather‑driven spikes.

3-Day Directional Outlook (in EUR terms)

• MDEX Nearby (Jul 2026): Mildly bearish to sideways in EUR; recent rally likely to consolidate in a 930–980 EUR/t equivalent band as traders digest May MPOB data and watch export surveys.
• MDEX Q4 2026 Strip (Oct–Dec): Sideways to slightly bullish; contango suggests limited downside while El Niño headlines could trigger brief tests above 1,000 EUR/t if weather risks intensify.
• MDEX Early 2027 (Jan–Mar): Stable to mildly firmer; current levels around 995–1,000 EUR/t appear fairly valued, with direction driven mainly by updated weather and export demand signals.