On Thursday (December 18), after a period of continuous decline, palm oil futures contracts on the Bursa Malaysia Derivatives Exchange continued their rebound from the previous trading day. The most active FCPOc3 contract closed up 13 ringgit, or 0.33%, at 3,979 ringgit per tonne. The market's stabilization and recovery were mainly driven by bargain hunting and an improved price spread with major competing edible oils, particularly soybean oil.

Core drivers: Return of cost-effectiveness and price gap repair

Industry veterans say market sentiment has shifted from a one-way sell-off to a reassessment of prices. Paramalingam Supramaniam, director of the Selangor-based brokerage firm Pelindung Bestari, noted that traders are buying into the price troughs following the recent sell-off. He emphasized that palm oil has become more attractive compared to other competing oils, especially soybean oil. This assessment is corroborated in the futures market. At today's close, soybean oil prices on the Chicago Board of Trade (CBOT) rose only slightly by 0.31%, while the most active soybean oil contract on the Dalian Commodity Exchange fell by 0.38%. In contrast, domestic palm oil contracts closed up 0.46%. The relative weakness in the domestic and international soybean oil markets, coupled with the rise in palm oil prices, is correcting the previously excessively wide price gap, allowing palm oil to regain a price advantage on the demand side.

Furthermore, volatility in the global energy market also provided indirect support. Although the magnitude was small, the rise in international crude oil prices continued to strengthen the economic appeal of palm oil as a feedstock for biodiesel. In terms of currency, the Malaysian ringgit appreciated slightly by 0.05% against the US dollar today, which put slight pressure on dollar-denominated procurement costs, but this impact was offset by fundamental factors.

Supply-side data shows positive signs

While the market focus remains on immediate trading logic, inventory data from producing countries offers potential long-term support. According to the latest data released by the Indonesian Palm Oil Association (GAPKI), despite an increase in production in October, Indonesian domestic palm oil inventories fell by 10% month-on-month to 2.33 million tons at the end of October. This decline exceeded market expectations, indicating that domestic consumption and export capacity remain strong. If this destocking trend continues, it will effectively alleviate persistent inventory pressure in major producing countries.

On the other hand, the Malaysian Palm Oil Board (MPOB) has recently signaled policy measures aimed at boosting exports. A notice issued by the board indicates that the reference price for crude palm oil exports in January 2026 has been set at a lower level, resulting in a reduction of the corresponding export tariff rate to 9.5%. This move aims to enhance the price competitiveness of Malaysian palm oil in the international market, particularly in gaining a larger market share in export competition with Indonesia, and in the long run, will help stabilize the export revenue and inventory levels of the producing country.

Future Focus and Market Logic

The current market rebound is more based on technical corrections and short-term arbitrage opportunities than a fundamental reversal in demand. Traders need to pay attention to several key variables: first, the evolution of the CBOT soybean oil-Malaysian palm oil price spread, which will directly affect global buyers' purchasing intentions; second, whether Indonesia's export pace matches inventory changes; and third, the impact of energy market volatility on the actual implementation of biodiesel blending policies.

It's worth noting that while inventory data shows positive changes, the current high inventory levels remain a real factor limiting upside potential for prices. Any optimistic predictions regarding the medium-term trend must be based on sustained and effective destocking. At the current juncture, the market is more likely to exhibit a wide-range fluctuation pattern, gradually searching for a new equilibrium. The core contradiction going forward will gradually shift from the conflict between macroeconomic pressures and production expectations to the verification of the resilience of actual demand and the rate of inventory depletion. For professional traders, micro-level changes in price spreads and high-frequency export and production data from major producing countries may be more indicative than individual price levels.