On Monday (November 3), the most active palm oil contract on the Malaysian Derivatives Exchange closed at 4,115 ringgit per tonne, down 92 ringgit, or 2.19%, on the day. The market continued its downward trend due to the combined effects of weak edible oil futures on the Dalian Commodity Exchange and expectations of increased production in producing countries.

External market drags coexist with internal supply pressures

On that day, the main soybean oil contract on the Dalian Commodity Exchange fell 0.52%, while the palm oil contract fell by 1.55%, significantly dragging down the Malaysian market. Paramalingam Supramaniam, director of Selangor brokerage Pelindung Bestari, pointed out: “Futures prices were dragged down by the weakness in the Dalian market, while continued production growth continued to exert pressure. On the other hand, we are seeing good demand creation, which will ultimately drive improved exports in November and December.” This view accurately reveals the current market contradiction: the interplay between short-term supply pressure and medium-term demand potential.

Fundamental factors are mixed.

Shipping survey data shows that Malaysian palm oil exports saw moderate growth in October. AmSpec Agri Malaysia reported a 4.3% month-on-month increase, while Intertek Testing Services data showed a 5.2% increase. This gradual recovery, while not providing a strong boost, offered some support to the market. Meanwhile, Indonesia's Statistics Bureau announced that crude palm oil and refined product exports totaled 17.58 million tons from January to September, a year-on-year increase of 11.62%, indicating that export momentum from major producing countries remains robust.

Changes in the crude oil market warrant attention. OPEC+ decided to maintain its current production policy in the first quarter of next year, alleviating concerns about oversupply and pushing international oil prices higher. Stronger crude oil prices have increased the attractiveness of palm oil as a feedstock for biodiesel, and this transmission mechanism will play a role in the medium to long term. Furthermore, the Malaysian ringgit depreciated by 0.31% against the US dollar on the same day, objectively increasing the purchasing power of palm oil for foreign exchange holders.

Institutional Views and Market Outlook

The current market is caught in a struggle between the traditional peak production season and the demand recovery period. The demand creation logic emphasized by Paramalingam Supramaniam of Pelindung Bestari is noteworthy; the year-end holiday stockpiling cycle typically begins to emerge after November, which could be a key variable in reversing the current weakness. However, in the short term, the trend of domestic edible oil futures will still significantly influence market sentiment, especially changes in the purchasing pace of China, a major importing region.

From a broader perspective, the landscape of the vegetable oil market is being reshaped. US soybean futures recorded their biggest monthly gain in nearly five years in October, hitting a 15-month high, primarily driven by rising expectations of Chinese purchases. If the strength in soybean oil continues, it will indirectly support palm oil through price comparisons. However, it's important to note that changes in price spreads between different oilseeds have a lag, and the transmission effect needs time to be verified.

Overall, the palm oil market is currently in a phase of intense competition between bullish and bearish factors. Increased production and weak external markets pose short-term pressures, while expectations of demand recovery, the biodiesel concept, and monetary factors offer potential support. Professional investors need to closely monitor changes in production area inventories and the purchasing dynamics of major importing countries, as these are the key factors that could disrupt the current balance.