The path of least resistance: Palm oil rebound faces two years of inventory pressure.
2025-11-04 19:09:57
On Tuesday (November 4), the most active palm oil contract on the Malaysian Derivatives Exchange closed at 4,144 ringgit per tonne, up 29 ringgit, or 0.7%, on the day. This rebound ended the previous downward trend and temporarily pulled the market away from the nearly four-month low reached the previous day.
The rebound at the beginning of this week can be seen as a result of both technical market correction and short-covering. Sandeep Singh, director of Kuala Lumpur-based consulting and trading firm The Farm Trade, noted, "Continued production increases in Malaysia and profit-taking by traders led to a sharp drop in palm oil prices last week, and the market is currently trying to find balance." This view reveals the direct drivers of recent volatility: supply pressures and short-term disturbances in capital flows.
However, fundamental pressures have not dissipated. Malaysian palm oil stocks are projected to climb to 2.44 million tons in October, the highest level since October 2023, representing a 3.5% increase month-on-month. More noteworthy is that monthly production may reach a seven-year high, while export demand has failed to keep pace. This data points to a clear supply-demand imbalance: during a high-production cycle, inventory accumulation is far exceeding market absorption capacity.
Weakness in external markets further limited the upside potential for palm oil. On November 4th, soybean oil futures contracts on the Chicago Board of Trade fell 0.38%, the main soybean oil contract on the Dalian Commodity Exchange remained unchanged, while palm oil futures contracts fell 0.85%. The weakness of competing edible oils has made palm oil face greater obstacles in the competition for market share in the global vegetable oil market.
The divergence on the demand side is equally significant. India's palm oil imports fell to a five-month low in October, resulting in a five-year low in total purchases for the 2024/25 marketing year. Several traders confirmed that as palm oil prices rose earlier, buyers have shifted to soybean oil, which has a more price advantage. If this trend continues, it will weaken the demand support for palm oil.
On the other hand, Indonesia's palm oil exports reached 17.58 million tons in the first nine months of this year, an increase of 11.62% year-on-year. The strong growth in Indonesian exports contrasts with high inventory levels in Malaysia, reflecting that competition among major producing countries is exacerbating the market's oversupply situation.
Analysts from well-known institutions believe that the core issue in the current market remains the pressure of inventory in producing countries. While a short-term technical rebound may continue, the upside potential for prices will be extremely limited if export data fails to improve significantly in the coming weeks. Furthermore, the ringgit's slight appreciation of 0.05% against the US dollar, though limited, will still dampen the purchasing intentions of buyers holding foreign currency.
For the medium- to long-term trend, the market needs to pay attention to two major variables: first, whether the seasonal production reduction cycle in Southeast Asia will arrive as expected; and second, changes in the restocking pace of major importing countries. If the future production reduction exceeds expectations, or if key markets such as India and China initiate concentrated purchasing, inventory pressure can gradually be alleviated.
In summary, the short-term rebound in the palm oil market is more due to technical corrections than a fundamental shift. The contradiction between peak production and weak demand has not yet been resolved, and inventory pressure remains the core factor suppressing prices. Going forward, close monitoring of export policy adjustments in major producing countries, price fluctuations of competing edible oils, and changes in the macroeconomic monetary environment is necessary. Before a clear signal of destocking emerges, the market may continue its weak and volatile pattern; investors should remain cautious and focus on marginal changes in fundamentals.
Oversold correction and fundamental pressure coexist.
The rebound at the beginning of this week can be seen as a result of both technical market correction and short-covering. Sandeep Singh, director of Kuala Lumpur-based consulting and trading firm The Farm Trade, noted, "Continued production increases in Malaysia and profit-taking by traders led to a sharp drop in palm oil prices last week, and the market is currently trying to find balance." This view reveals the direct drivers of recent volatility: supply pressures and short-term disturbances in capital flows.
However, fundamental pressures have not dissipated. Malaysian palm oil stocks are projected to climb to 2.44 million tons in October, the highest level since October 2023, representing a 3.5% increase month-on-month. More noteworthy is that monthly production may reach a seven-year high, while export demand has failed to keep pace. This data points to a clear supply-demand imbalance: during a high-production cycle, inventory accumulation is far exceeding market absorption capacity.
Related market and demand-side differentiation
Weakness in external markets further limited the upside potential for palm oil. On November 4th, soybean oil futures contracts on the Chicago Board of Trade fell 0.38%, the main soybean oil contract on the Dalian Commodity Exchange remained unchanged, while palm oil futures contracts fell 0.85%. The weakness of competing edible oils has made palm oil face greater obstacles in the competition for market share in the global vegetable oil market.
The divergence on the demand side is equally significant. India's palm oil imports fell to a five-month low in October, resulting in a five-year low in total purchases for the 2024/25 marketing year. Several traders confirmed that as palm oil prices rose earlier, buyers have shifted to soybean oil, which has a more price advantage. If this trend continues, it will weaken the demand support for palm oil.
On the other hand, Indonesia's palm oil exports reached 17.58 million tons in the first nine months of this year, an increase of 11.62% year-on-year. The strong growth in Indonesian exports contrasts with high inventory levels in Malaysia, reflecting that competition among major producing countries is exacerbating the market's oversupply situation.
Institutional Views and Future Focus
Analysts from well-known institutions believe that the core issue in the current market remains the pressure of inventory in producing countries. While a short-term technical rebound may continue, the upside potential for prices will be extremely limited if export data fails to improve significantly in the coming weeks. Furthermore, the ringgit's slight appreciation of 0.05% against the US dollar, though limited, will still dampen the purchasing intentions of buyers holding foreign currency.
For the medium- to long-term trend, the market needs to pay attention to two major variables: first, whether the seasonal production reduction cycle in Southeast Asia will arrive as expected; and second, changes in the restocking pace of major importing countries. If the future production reduction exceeds expectations, or if key markets such as India and China initiate concentrated purchasing, inventory pressure can gradually be alleviated.
Conclusion: The sustainability of the rebound remains questionable; we await a rebalancing of supply and demand.
In summary, the short-term rebound in the palm oil market is more due to technical corrections than a fundamental shift. The contradiction between peak production and weak demand has not yet been resolved, and inventory pressure remains the core factor suppressing prices. Going forward, close monitoring of export policy adjustments in major producing countries, price fluctuations of competing edible oils, and changes in the macroeconomic monetary environment is necessary. Before a clear signal of destocking emerges, the market may continue its weak and volatile pattern; investors should remain cautious and focus on marginal changes in fundamentals.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
