Palm oil futures on the Bursa Malaysia Derivatives Exchange continued their weakness on Tuesday (December 16). The benchmark March contract fell 52 ringgit to settle at 3,961 ringgit per tonne, a 1.3% drop on the day. This closing price marked the third consecutive day of decline and the lowest level since June 26. The market context is clear: a generally weak global vegetable oil market, coupled with concerns about potential accumulation of Malaysian palm oil inventories, constituted the main downward pressure on prices.

The dual pressure from fundamentals and related markets

The current market weakness is not an isolated phenomenon. On the one hand, lower prices for palm oil's main competing edible oils directly dragged down market sentiment. The most actively traded soybean oil futures contract on the Dalian Commodity Exchange fell 0.83%, while its palm oil futures contract fell 0.97%. Meanwhile, soybean oil prices on the Chicago Board of Trade (CBOT) also declined by 0.99%. Palm oil prices have historically moved in tandem with the price spreads of these alternative edible oils due to their direct market share competition in the global vegetable oil market. Anilkumar Bagani, head of commodities research at Mumbai-based brokerage Sunvin Group, pointed out that the decline in palm oil futures closely follows the overall weakness in the global vegetable oil market.

On the other hand, weak export data exacerbated market concerns about domestic inventory pressure. Shipping survey data showed that from December 1st to 15th, Malaysian palm oil product exports fell by 15.9% to 16.4% compared to the same period last month. Anilkumar Bagani analyzed that the continued weakness in Malaysian palm oil exports increases the risk of further inventory increases. Furthermore, the Malaysian ringgit strengthened by 0.15% against the US dollar today, which means higher import costs for goods priced in ringgit and purchased by foreign exchange buyers, posing another layer of pressure.

Signals of divergence between the macro environment and demand side

The macroeconomic environment is negatively impacting the biodiesel concept of palm oil. International crude oil prices continued to decline today, extending the previous trading day's losses. The market believes the prospects for a peace agreement between Russia and Ukraine have improved, raising expectations of a possible easing of sanctions on energy supplies, thus putting downward pressure on oil prices. Weak crude oil prices have diminished the economic appeal of palm oil as a feedstock for biodiesel.

However, the demand side is not without its bright spots. According to data from the Solvent Extractors Association of India (SEA), India's palm oil imports increased slightly in November. This was due to local refiners taking advantage of lower prices to increase their purchases of this tropical oil, while reducing imports of more expensive soybean and sunflower oils. This indicates that price factors are driving dynamic adjustments in the import structure of edible oils in major consuming countries, and palm oil can still attract real demand at certain price levels, which may provide some buffer during a downward trend.

Institutional Views and Outlook

In summary, the short-term market logic is clear: weak competition in edible oils, slowing exports, a strengthening currency, and the drag from crude oil prices have combined to put downward pressure on prices. The inventory risk highlighted by Anilkumar Bagani of Sunvin Group has become a core concern for traders. If exports fail to improve significantly in the second half of December, the end-of-month inventory data could be the next key test for the market.

From a longer-term perspective, the market structure contains potential contradictions. Current weak price levels are stimulating actual purchases in key markets such as India, which helps absorb some supply pressure. Furthermore, the impact of geopolitical events on the energy market remains uncertain; if sentiment in the crude oil market shifts, expectations for palm oil biodiesel demand may also recover. However, these potential supporting factors have not yet combined to reverse the short-term downward trend driven by inventory concerns. The focus going forward will be on the interplay between the rate of Malaysian inventory accumulation and the strength of bargain hunting in major consuming countries. Traders need to closely monitor upcoming full-month export data, production forecasts, and relevant policy moves in major producing countries to determine whether the market can find a new equilibrium near the current key price levels.