Palm Oil Prices Slide Amid Stocks Build-Up and Weather Volatility: Is a Market Rebound Ahead?

The palm oil market has entered a phase of notable downward correction after months of strength, with futures on Malaysia’s MDEX closing lower for the third consecutive day. Sentiment across the global vegetable oil complex is weighed by weak export demand, rising inventories, and the impacts of shifting biodiesel policies, particularly in key markets like the US and Indonesia. Recent data shows the reference contract dropping to its lowest since June, while the Malaysian ringgit’s relative strength compounds the bearish outlook.

Industry discussions have increasingly centered on the lagging biodiesel demand in the United States, subdued offtake from China, and the approach of Brazil’s record soybean harvest—all of which pressure palm oil prices through both direct competition and substitution effects. Meanwhile, production in top growers, Malaysia and Indonesia, remains robust, but export flows to price-sensitive markets like India and the EU remain slowed, especially as palm oil now temporarily trades at a premium over soybean and sunflower oil.

Malaysia and Indonesia face a delicate balancing act: robust output can keep global inventories swelling, but extreme weather events and the tight interplay with energy markets mean prices can quickly recover on any sign of export improvement or supply disruption. With global vegetable oil markets at a crossroads, all eyes are on seasonal patterns, official stocks data, and macro signals from currency and oil markets.

📈 Prices: MDEX Palm Oil Futures

Contract	Close (MYR/t)	Weekly Change (%)	Market Sentiment
Jan 26	3979	+0.7%	Bearish
Feb 26	3995	+0.8%	Bearish
Mar 26	3999	+0.8%	Bearish
Apr 26	4003	+0.8%	Bearish
May 26	4002	+0.8%	Bearish

• The market continues to experience downward correction, albeit with some contracts stabilizing on technical support.
• Recent MDEX closes are above the six-month average but trajectory is negative; prices are now at the lowest since June for several forward contracts.

🌍 Supply & Demand Overview

• Production: Malaysia and Indonesia, which jointly account for about 85% of global output, reported stable-to-rising production despite seasonal monsoon impacts in Malaysia. Malaysia’s June 2024 output stood at 1.75 million tons (+13.5% y/y)【6:19†full-posts-2024.json】.
• Stocks: Malaysian palm oil stocks hit 1.75 million tons at end-May (virtually unchanged y/y). However, inventories are expected to rise in the coming weeks owing to export slowdowns and robust output【6:19†full-posts-2024.json】.
• Exports: Malaysian exports reached 6.31 million tons for Jan-May 2024 (+6.6% y/y), with China and India as major buyers. However, recent months have seen declining shipments as palm oil lost some price advantage against competing soft oils【6:19†full-posts-2024.json】.
• Global Imports: In the EU, palm oil imports fell to 1.35 million tons YTD (down 12% y/y), reflecting both substitution with other oils and increased regulatory scrutiny.
• Competing Oils: Palm oil now temporarily trades at a premium to both soybean (CPO: USD 0.70/kg, Soy: USD 0.58/kg) and sunflower oil (USD 0.65/kg), a reversal from normal seasonal patterns – dampening global demand【6:14†full-posts-2024.json】.

📊 Fundamental Data & Key Market Drivers

• Biodiesel: Uncertainty persists regarding the US EPA’s 2026 biodiesel blending requirements, with final rules only due in early 2025. Indonesia’s B40 mandate continues to restrict exportable palm oil supplies, providing underlying support.
• Weather: Monsoon rains in Malaysia have mostly been timely, sustaining yields and limiting production loss fears. Flooding risks are closely monitored but so far, adverse impacts have been isolated【6:2†full-posts-2024.json】.
• Currency Markets: A stronger Malaysian ringgit against the US dollar has increased local prices, dampening export competitiveness.
• Speculative Positioning: Managed funds have scaled back net longs on palm oil after technical breakdowns, bringing further downside pressure.
• Seed Oil Competition: Record harvests in Brazil (soy) and expanded rapeseed plantings in France are weighing on the outlook for all vegetable oils.

⛅ Weather & Crop Outlook

• Malaysia/Indonesia: Ample and well-distributed rainfall prevails, supporting high yields in most growing regions. Short-term forecasts show typical monsoon activity with only localized flooding reported.
• Impact: Expect above-average production through Q1 2025 as the wet season draws to a close. Significant disruptions are not expected unless major flooding events occur during harvest windows.
• Brazil: Favorable weather supports Brazil’s soybean harvest, increasing competition on the global oils market.

🌐 Global Production & Stocks (Major Players 2023/24)

Country	Production (mt)	Stocks (mt)	Export (mt)
Indonesia	47.4	4.10	28.5
Malaysia	19.7	1.75	17.3
EU	2.7	0.6	0.02
India (importer)	0.6	0.92	8.5 (import)
China (importer)	0.3	1.25	6.9 (import)

Source: USDA, industry surveys. All figures in million tonnes.

📌 Market Outlook & Trading Recommendations

• Further downside price risk remains in the near term, especially if Malaysian and Indonesian stocks continue climbing or if Brazil’s soybean offers remain aggressive.
• Watch for signs of renewed export activity or government intervention – a policy pivot could spark a price recovery.
• Monitor biodiesel policy developments in the US and Indonesia for demand-side shocks.
• Short-to-neutral positions favored in the short term; consider call options or long exposure only if production losses materialize or if export data surprises positively.
• Processors: Consider strategic buying on price dips; end-users, avoid overbuying until export recovery is visible.

📆 3-Day Regional Price Forecast (MDEX)

Date	Expected Range (MYR/t)	Bias
Day 1	3950 – 4000	Lower/Sideways
Day 2	3930 – 3980	Lower
Day 3	3915 – 3970	Sideways/Possibly Lower