Palm oil at a crossroads: Under the shadow of high inventory, is the 4200 mark a ceiling or a new starting point?
2025-12-03 18:25:03
On Wednesday (December 3), palm oil futures on the Malaysian Derivatives Exchange (BMD) experienced a volatile trading session, initially declining before rebounding. The benchmark February contract ultimately closed up 33 ringgit, or 0.79%, at 4,192 ringgit per tonne. This rebound partially recovered from the previous trading day's losses, temporarily easing the market's cautious atmosphere stemming from recent inventory concerns. However, the day's volatile trading and narrowing price range clearly reflect the complex mindset of market participants facing conflicting fundamental factors.
The core pressure on market sentiment stems from the accumulating inventory expectations. David Ng, a trader in Kuala Lumpur, explicitly pointed out that market sentiment is being suppressed by rising inventory expectations, with weak seasonal demand leading to an accumulation of palm oil stocks. This view echoes the conclusion of a survey conducted on the same day by a well-known institution: Malaysian palm oil stocks are expected to climb to a six-and-a-half-year high in November, due to a sharp decline in exports while production is likely to reach a record high. The shadow of high inventory hangs like a sword of Damocles, continuously limiting the upside potential of prices. Furthermore, the Federal Land Development Authority of Malaysia and its commercial arm, FGV Holdings, received notices from the state of Terengganu requesting them to vacate some oil palm plantation land. If this event develops further, it could potentially impact related operations and even national palm oil production, adding to market uncertainty.
However, the market was not entirely dominated by a single negative factor; supporting factors from the demand side and related markets are creating a balance. On the one hand, the price decline itself stimulated some buying interest. Data shows that India, the world's largest importer of vegetable oils, slightly increased its palm oil imports in November, as falling prices prompted refiners to switch to more cost-effective palm oil while reducing purchases of more expensive soybean and sunflower oils. This demand driven by price elasticity provided a floor for the market. On the other hand, the linkage with external markets became a key driver of the intraday rebound. Traders generally observed that the price movement of palm oil futures was mainly driven by the strength of Dalian palm oil and overnight Chicago soybean oil prices. A trader in Kuala Lumpur summarized that the market was "cautiously tracking the trend of Dalian palm oil and drawing support from the firm Chicago soybean oil price, while awaiting new market guidance." This close linkage with the prices of competing oils is a normal manifestation of palm oil's competition for market share in the global vegetable oil market.
Analysts offered a multi-faceted perspective on the market outlook, considering both technical and fundamental factors. David Ng believes that crude palm oil futures have support at 4,000 ringgit per tonne and resistance at 4,180 ringgit. Wang Tao, a technical analyst from a well-known institution, provided a more bullish technical outlook: palm oil may test the resistance level of 4,202 ringgit per tonne, and a break above this level could open a path to 4,274 ringgit.
In summary, the palm oil market is currently in a volatile phase, characterized by a struggle between high inventory pressure and external market support. In the short term, the market will closely monitor the upcoming official Malaysian supply and demand data for November to verify the extent of inventory accumulation. More important medium-term drivers will come from two directions: firstly, the impact of weather changes in South American soybean producing regions on global soybean oil costs; and secondly, whether major importing countries can sustain their actual purchasing pace driven by price incentives. Although the high inventory fundamentals make a strong unilateral upward trend difficult, the downside is also limited given the resilience of related vegetable oil markets and the fact that prices have partially absorbed the negative impact of inventory. In the near future, the market may fluctuate widely around its current level, allowing time for a new supply and demand balance to be reached. Traders should be prepared for this highly volatile pattern.
The core pressure on market sentiment stems from the accumulating inventory expectations. David Ng, a trader in Kuala Lumpur, explicitly pointed out that market sentiment is being suppressed by rising inventory expectations, with weak seasonal demand leading to an accumulation of palm oil stocks. This view echoes the conclusion of a survey conducted on the same day by a well-known institution: Malaysian palm oil stocks are expected to climb to a six-and-a-half-year high in November, due to a sharp decline in exports while production is likely to reach a record high. The shadow of high inventory hangs like a sword of Damocles, continuously limiting the upside potential of prices. Furthermore, the Federal Land Development Authority of Malaysia and its commercial arm, FGV Holdings, received notices from the state of Terengganu requesting them to vacate some oil palm plantation land. If this event develops further, it could potentially impact related operations and even national palm oil production, adding to market uncertainty.
However, the market was not entirely dominated by a single negative factor; supporting factors from the demand side and related markets are creating a balance. On the one hand, the price decline itself stimulated some buying interest. Data shows that India, the world's largest importer of vegetable oils, slightly increased its palm oil imports in November, as falling prices prompted refiners to switch to more cost-effective palm oil while reducing purchases of more expensive soybean and sunflower oils. This demand driven by price elasticity provided a floor for the market. On the other hand, the linkage with external markets became a key driver of the intraday rebound. Traders generally observed that the price movement of palm oil futures was mainly driven by the strength of Dalian palm oil and overnight Chicago soybean oil prices. A trader in Kuala Lumpur summarized that the market was "cautiously tracking the trend of Dalian palm oil and drawing support from the firm Chicago soybean oil price, while awaiting new market guidance." This close linkage with the prices of competing oils is a normal manifestation of palm oil's competition for market share in the global vegetable oil market.
Analysts offered a multi-faceted perspective on the market outlook, considering both technical and fundamental factors. David Ng believes that crude palm oil futures have support at 4,000 ringgit per tonne and resistance at 4,180 ringgit. Wang Tao, a technical analyst from a well-known institution, provided a more bullish technical outlook: palm oil may test the resistance level of 4,202 ringgit per tonne, and a break above this level could open a path to 4,274 ringgit.
In summary, the palm oil market is currently in a volatile phase, characterized by a struggle between high inventory pressure and external market support. In the short term, the market will closely monitor the upcoming official Malaysian supply and demand data for November to verify the extent of inventory accumulation. More important medium-term drivers will come from two directions: firstly, the impact of weather changes in South American soybean producing regions on global soybean oil costs; and secondly, whether major importing countries can sustain their actual purchasing pace driven by price incentives. Although the high inventory fundamentals make a strong unilateral upward trend difficult, the downside is also limited given the resilience of related vegetable oil markets and the fact that prices have partially absorbed the negative impact of inventory. In the near future, the market may fluctuate widely around its current level, allowing time for a new supply and demand balance to be reached. Traders should be prepared for this highly volatile pattern.
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