Palm oil dilemma: a struggle between strong support and high inventory levels, will the 4,000 ringgit defense line be breached?
2026-01-09 19:10:18
On Friday (January 9), the most active palm oil futures contract on the Bursa Malaysia Derivatives exchange closed lower after fluctuating throughout the day. As of the afternoon close in Beijing time, the March contract settled at 4,038 ringgit per tonne, down 5 ringgit for the day. Despite a slight pullback during the day, palm oil prices still recorded an overall increase this week, supported by strength in related vegetable oils and expectations of potential adjustments to export taxes in Indonesia.
The core driver of the market recently has shifted from simple seasonal supply and demand to more complex policy expectations and cross-market linkages. On the fundamental side, market focus is now shifting to the upcoming monthly data from the Malaysian Palm Oil Board (MPOB) next week. There are widespread concerns that Malaysian inventory levels at the end of December may remain high, creating continued upward pressure on prices. Kenanga Futures analysis indicates that the possibility of profit-taking and persistent concerns about high inventory levels ahead of the MPOB data release are likely to limit any upside potential for palm oil prices. The firm sets key short-term support and resistance levels at 4015 ringgit and 4115 ringgit per tonne, respectively.
On the news front, policy developments from Indonesia have injected new variables into the market. Eniya Listiani Dewi, an official from the Indonesian Ministry of Energy, recently told the media that the government "may" raise export taxes on palm oil to support the country's mandatory biodiesel blending program, citing tightening funding. This statement immediately triggered a reassessment of supply-side costs in the market. Anilkumar Bagani, head of commodities research at Sunvin Group in Mumbai, commented, "If Indonesia raises export taxes, it will support the export potential of Malaysian palm oil." This view clearly points to the potential impact of policy changes on the competitive landscape of the two major producing countries—tax increases could weaken the export price competitiveness of Indonesian palm oil, thereby shifting some demand to Malaysia.
Meanwhile, the strong performance of related oil products on the international market continued to provide price support for palm oil. During trading hours on January 9th (Beijing time), soybean oil prices on the Chicago Board of Trade (CBOT) rose significantly by 0.73%, while soybean oil and palm oil futures on the Dalian Commodity Exchange in China also closed higher by 0.25% and 0.42%, respectively. As an important player in the global vegetable oil market, palm oil prices have always been closely linked to competing oil products such as soybean oil. Furthermore, international crude oil prices continued their upward trend, heading towards a third consecutive week of gains. Geopolitical factors, particularly concerns about supply prospects from Venezuela and Iran, were the main driver of the stronger oil prices. Stronger crude oil prices increased the economic attractiveness of palm oil as a feedstock for biodiesel, reinforcing this demand logic for biofuels in the current energy market environment.
However, technical analysis indicates that prices are facing some resistance at current levels. A well-known technical analyst pointed out that palm oil contracts failed to effectively break through the resistance level of 4074 ringgit per ton, and their trend is inclined to retest the support level of 4024 ringgit per ton. This aligns with the current market situation where bullish and bearish factors are intertwined.
In summary, the palm oil market is currently at a delicate balance between bullish and bearish factors. On the one hand, the strength of competing oil products and the crude oil market, as well as potential policies in Indonesia to boost the domestic biodiesel industry, provide solid support for prices and offer upward potential. On the other hand, Malaysia's already high inventory pressure and the resulting cautious sentiment before data releases are the main forces suppressing short-term prices.
The market's next move will depend on the clarification of several key factors: First, the comparison between the actual data in next week's MPOB report and market expectations, any unexpected changes in inventory will trigger a sharp reaction; second, whether Indonesia's discussions on adjusting export taxes will translate into formal policy, and the specific magnitude of the adjustment; and finally, weather changes in global soybean producing regions, the trend in the crude oil market, and the purchasing pace of major importing countries will continue to indirectly affect the palm oil market by influencing soybean oil and energy prices.
In the short term, the market may continue to fluctuate within the existing range to digest these intertwined information. Traders need to closely monitor the emergence of the aforementioned catalysts, especially the subsequent developments in Indonesian policy, as they could reshape the export competition landscape among major producing countries and become a key factor in disrupting the current balance. Although the long-term outlook for biodiesel demand growth remains optimistic, it must be recognized that the reality of high inventory levels in the short to medium term, coupled with the time lag in policy implementation, may make the upward price path less than smooth, and the process may be fraught with fluctuations.
The core driver of the market recently has shifted from simple seasonal supply and demand to more complex policy expectations and cross-market linkages. On the fundamental side, market focus is now shifting to the upcoming monthly data from the Malaysian Palm Oil Board (MPOB) next week. There are widespread concerns that Malaysian inventory levels at the end of December may remain high, creating continued upward pressure on prices. Kenanga Futures analysis indicates that the possibility of profit-taking and persistent concerns about high inventory levels ahead of the MPOB data release are likely to limit any upside potential for palm oil prices. The firm sets key short-term support and resistance levels at 4015 ringgit and 4115 ringgit per tonne, respectively.
On the news front, policy developments from Indonesia have injected new variables into the market. Eniya Listiani Dewi, an official from the Indonesian Ministry of Energy, recently told the media that the government "may" raise export taxes on palm oil to support the country's mandatory biodiesel blending program, citing tightening funding. This statement immediately triggered a reassessment of supply-side costs in the market. Anilkumar Bagani, head of commodities research at Sunvin Group in Mumbai, commented, "If Indonesia raises export taxes, it will support the export potential of Malaysian palm oil." This view clearly points to the potential impact of policy changes on the competitive landscape of the two major producing countries—tax increases could weaken the export price competitiveness of Indonesian palm oil, thereby shifting some demand to Malaysia.
Meanwhile, the strong performance of related oil products on the international market continued to provide price support for palm oil. During trading hours on January 9th (Beijing time), soybean oil prices on the Chicago Board of Trade (CBOT) rose significantly by 0.73%, while soybean oil and palm oil futures on the Dalian Commodity Exchange in China also closed higher by 0.25% and 0.42%, respectively. As an important player in the global vegetable oil market, palm oil prices have always been closely linked to competing oil products such as soybean oil. Furthermore, international crude oil prices continued their upward trend, heading towards a third consecutive week of gains. Geopolitical factors, particularly concerns about supply prospects from Venezuela and Iran, were the main driver of the stronger oil prices. Stronger crude oil prices increased the economic attractiveness of palm oil as a feedstock for biodiesel, reinforcing this demand logic for biofuels in the current energy market environment.
However, technical analysis indicates that prices are facing some resistance at current levels. A well-known technical analyst pointed out that palm oil contracts failed to effectively break through the resistance level of 4074 ringgit per ton, and their trend is inclined to retest the support level of 4024 ringgit per ton. This aligns with the current market situation where bullish and bearish factors are intertwined.
Market Outlook and Key Focus Areas
In summary, the palm oil market is currently at a delicate balance between bullish and bearish factors. On the one hand, the strength of competing oil products and the crude oil market, as well as potential policies in Indonesia to boost the domestic biodiesel industry, provide solid support for prices and offer upward potential. On the other hand, Malaysia's already high inventory pressure and the resulting cautious sentiment before data releases are the main forces suppressing short-term prices.
The market's next move will depend on the clarification of several key factors: First, the comparison between the actual data in next week's MPOB report and market expectations, any unexpected changes in inventory will trigger a sharp reaction; second, whether Indonesia's discussions on adjusting export taxes will translate into formal policy, and the specific magnitude of the adjustment; and finally, weather changes in global soybean producing regions, the trend in the crude oil market, and the purchasing pace of major importing countries will continue to indirectly affect the palm oil market by influencing soybean oil and energy prices.
In the short term, the market may continue to fluctuate within the existing range to digest these intertwined information. Traders need to closely monitor the emergence of the aforementioned catalysts, especially the subsequent developments in Indonesian policy, as they could reshape the export competition landscape among major producing countries and become a key factor in disrupting the current balance. Although the long-term outlook for biodiesel demand growth remains optimistic, it must be recognized that the reality of high inventory levels in the short to medium term, coupled with the time lag in policy implementation, may make the upward price path less than smooth, and the process may be fraught with fluctuations.
- 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.
