On Tuesday (October 21), the Malaysian palm oil futures market failed to maintain its previous momentum, reversing course and closing lower due to weakening prices of competing oils. The benchmark January contract, FCPOC3, closed at 4,508 ringgit/ton, down 5 ringgit, or 0.11%, from the previous day. Market sentiment was clearly impacted by the weak performance of the Dalian vegetable oil sector.

The external market linkage effect is significant

On the same day, all relevant commodities on the Dalian Commodity Exchange fell, with the main soybean oil contract falling 0.22% and the palm oil contract falling even more significantly, by 0.81%. This contrasted with a slight 0.12% increase in soybean oil prices on the Chicago Board of Trade, highlighting the diverging patterns in regional markets. This divergence confirms the close correlation between palm oil prices and competing edible oils, with the weakness in the Dalian market directly transmitting to Malaysian palm oil futures.

The Malaysian Palm Oil Council said on Tuesday that amid uncertainties in the export outlook for palm oil and soybean oil, it expects crude palm oil prices to remain above 4,400 ringgit per ton until 2026. This official forecast provides a long-term price anchor for the market.

Analysis of export data and currency factors

Data released by shipping surveyor Intertek Testing Services showed that Malaysia's palm oil product exports from October 1 to 20 increased by 3.4% compared to the same period in September. Data from AmSpec Agri Malaysia, another independent inspection agency, showed a 2.5% increase. Despite this modest recovery in exports, it failed to offset negative external market pressure.

The trading currency, the ringgit, weakened slightly by 0.05% against the dollar. This exchange rate change theoretically increased the attractiveness of palm oil to foreign buyers, but the positive impact was limited and not enough to reverse the overall decline.

Energy Market and Demand Side Observations

Crude oil prices stabilized on Tuesday after falling on Monday, but concerns about oversupply and demand risks continued to hang over the market. Weak crude oil futures have weakened the economic appeal of palm oil as a biodiesel feedstock, limiting any potential price rebound.

Meanwhile, Chicago Board of Trade soybean futures hit a one-month high on Monday, driven by optimism about trade talks between the world's two largest economies. This support for vegetable oils has yet to be fully reflected in the palm oil market.

Market Outlook: Short-term pressure and long-term support coexist

The current market landscape suggests that palm oil prices will remain constrained in the short term by external markets, particularly the performance of competing oils. While improved export data and a weaker ringgit have provided some support, a weak Dalian market and uncertainty surrounding crude oil prices remain key pressures.

From a long-term perspective, the Malaysian Palm Oil Council's expectation that prices will stabilize above 4,400 ringgit, combined with a modest improvement in export data, provides market support. However, for prices to break through effectively, stronger export demand or a clear turn in the energy market is still needed.