Palm Oil Market Shifts Lower as Supply Outlook Improves, Weather Risks Remain

The global palm oil market has been under pressure in recent sessions as key contract prices on the Bursa Malaysia Derivatives Exchange (MDEX) tumbled over 1% in a single day. Stronger recent production, an improved supply outlook, and persistent global macroeconomic uncertainties have combined to weigh on prices. However, lingering concerns about weather developments in Southeast Asia are keeping some volatility alive. With palm oil pricing acting as a bellwether for global vegetable oils, traders and industry participants are keenly watching not just immediate supply flows but also forecasts for demand from China, India, and key biodiesel sectors.

This report analyses the drivers behind the latest price movement, the fundamental market backdrop, and how impending weather threats—particularly El Niño developments—could shape the coming quarter. A short-term trading outlook and 3-day price forecast provide actionable insights for stakeholders navigating this pivotal period.

📈 Prices: Key Palm Oil Futures on MDEX (MYR/t)

Contract	Previous Close	Last Close	Change (MYR)	Change (%)	Volume	Market Sentiment
Jul 25	4087	4041	-46	-1.14%	658	Bearish
Aug 25	4119	4068	-51	-1.25%	1212	Bearish
Sep 25	4126	4072	-54	-1.33%	7695	Bearish
Oct 25	4125	4070	-55	-1.35%	2462	Bearish
Nov 25	4128	4073	-55	-1.35%	668	Bearish
Dec 25	4141	4084	-57	-1.40%	557	Bearish

Note: Prices in Malaysian Ringgit (MYR/t). Most active months listed. Recent sessions show sharp negative moves reflecting selling pressure.

🌍 Supply & Demand Overview

• Production: Malaysian and Indonesian output improved in May/June, with mills reporting strong fresh fruit bunch yields. MPOB data show monthly Malaysian output rising, softening the bullish case.
• Exports: Shipments to India and China have improved on a month-over-month basis, though European demand remains sluggish amid ample stocks.
• Inventories: Malaysian end-stocks have edged higher, a key bearish driver for near-term prices. Indonesia continues to manage stocks tightly with its DMO (Domestic Market Obligation) policy.
• Demand: Biofuel sector buying underpinning some support, but food and oleochemical demand is seasonally muted. Weak global economic cues cap major upside.

📊 Fundamentals

• USDA/Industry reports: Latest WASDE and private survey data highlight slight upgrades to Southeast Asian palm oil production for 2024/25, with global ending stocks projected marginally higher than last report.
• Speculative position: Managed money has decreased long positions amid the recent downtrend.
• Relative oils: Soy oil and rapeseed oil prices have also faced downward corrections, limiting inter-oil spread support for palm oil.

Country	2023/24 Production (Mt)	2023/24 Stocks (Mt)
Indonesia	48.5	4.1
Malaysia	18.8	2.2
Thailand	3.2	0.4
Rest of World	3.9	0.3
World Total	74.4	7.0

🌦️ Weather Outlook & Crop Watch

• Malaysia, Indonesia: Weather models (NOAA, local agencies) show above-average rainfall for much of Malaysia through week’s end, aiding short-term tree health after a drier spell. Indonesia’s Sumatra and Kalimantan regions also benefit from recent scattered showers.
• El Niño/La Niña: The latest consensus is a transition from weak El Niño to neutral-weak La Niña conditions, decreasing the risk of severe drought but increasing chances of intermittent heavy rains and local flooding.
• Crop Impact: No significant issues expected for immediate harvest, though longer-term concerns about replanting and disease management persist if rains are prolonged.

🗺️ Global Market Comparison

Exchange	Product	Latest Close	Weekly Change
Bursa Malaysia (MDEX)	Palm Oil (Jul 25)	4041 MYR/t	-1.14%
India MCX	Crude Palm Oil (Jul 25)	Unavailable	N/A

*Note: Lack of MCX data is due to timing/holidays; Europe and other markets update lagging.

⚡ Key Market Drivers

• Bigger-than-expected Malaysian output in May/June, with a moderate rise in stocks.
• Improved export flows to India/China, but sluggish EU demand.
• Macro headwinds (USD strength, global growth fears) weigh on the complex.
• Short-term weather improvement, but close watch on La Niña rainfall risk.

📌 Trading Outlook & Recommendations

• Short-term bearish sentiment persists; avoid aggressive buying until weather/demand signals turn.
• Watch for confirmation of increased La Niña risk—potential for local flooding could tighten supply, supporting prices rapidly.
• Monitor China/India demand signals for any rebound in order flows, as a price dip may incentivise buying.
• Long-term hedgers may cautiously build positions below 4000 MYR/t, but only with weather insurance in place.

📆 3-Day Price Forecast (MDEX, Jul 25 contract)

• • June 25: 4020 – 4060 MYR/t (sideways to weak, volatility expected on weather updates)
  • June 26: 4010 – 4060 MYR/t (watch for further profit-taking or relief bounce)
  • June 27: 4000 – 4070 MYR/t (range-bound, La Niña commentary likely to steer intraday sentiment)