With massive inventory pressures and a surge in exports, is the window of opportunity for palm oil production narrowing?
2026-01-14 18:53:08
On Wednesday (January 15), benchmark contract prices on the Bursa Malaysia Derivatives Exchange fluctuated. At the close, the most actively traded March crude palm oil futures contract settled at 4,043 ringgit per tonne, down 21 ringgit on the day. The volatility reflects the market's current digestion of conflicting fundamental information: on the one hand, purchasing intentions from India are providing support; on the other hand, recent policy adjustments from Indonesia and high inventory levels in Malaysia are creating upward pressure.
The core contradiction in the market right now lies in the pressure on the supply side and the potential improvement in demand. High inventory levels in Malaysia are an undeniable fact. David Ng, a trader at Kuala Lumpur-based trading firm Iceberg X, explicitly pointed out that high Malaysian inventory levels are the main reason for the downward pressure on prices. According to recent data, Malaysian palm oil inventories have climbed to a near seven-year high, breaking through the key psychological level of 3 million tons, which continues to put downward pressure on forward prices. However, Ng also added that stronger crude oil prices will provide upward momentum for palm oil in the short term. He believes that crude palm oil futures may find support at 3,950 ringgit per ton and encounter resistance at 4,100 ringgit per ton.
In contrast to high inventory levels, recent export data has shown positive signs, bringing a glimmer of hope to the market. Paramalingam Supramaniam, director of Selangor broker Pelindung Bestari, observed that the market is seeing linked buying activity with the rise in Chicago soybean oil and the Dalian market in China. He emphasized that January exports are building momentum, with the first 10 days showing strong growth, and the market expects the first 15 days to remain positive. "In the past two days, we have seen a rebound in demand interest from India and China," Supramaniam said. Shipping surveyors estimate that Malaysian palm oil product exports from January 1st to 10th increased by 17.7% to 29.2% compared to the same period last month. The market is closely watching the full export forecast for the first half of January, to be released today (January 15th).
While Malaysia's inventory levels are a known negative factor, Indonesia's policy adjustment announced yesterday is a newly emerging key variable with far-reaching implications. On January 14, Indonesian officials announced that due to technical and financial considerations, they had cancelled the plan to implement B50 biodiesel (a blend of 50% palm oil-based biodiesel and 50% conventional diesel) this year, and would maintain the current B40 standard. This decision came as a surprise to the market.
As the world's largest palm oil producer, Indonesia's mandatory blending ratio for domestic biodiesel directly impacts global palm oil export supply. Previously, the market anticipated that the implementation of the B50 program would absorb an additional 2.2 million tons of crude palm oil in the second half of the year, forming a significant supporting factor for forward prices. Anilkumar Bagani, Head of Commodity Research at Sunvin Group in Mumbai, commented, "Indonesia's cancellation of the 2026 B50 program is a negative factor for palm oil prices, as the market had expected the additional blending ratio to absorb more crude palm oil." He further pointed out, "The price buffer provided by the B50 expectation will begin to weaken, and due to high carryover inventories, particularly in Malaysia, the price discount of palm oil relative to competing oils may widen."
Following this announcement, Malaysian palm oil futures gave back their earlier gains and ultimately closed lower. To maintain the sustainability of its biodiesel subsidy fund, the Indonesian government also announced that it would raise the export tax on crude palm oil to 12.5% starting March 1st, with corresponding increases in taxes on refined products. The Indonesian Palm Oil Farmers Association (POPSI) warned that this move could weaken the competitiveness of Indonesian palm oil in the global market, prompting buyers to turn to other suppliers such as Malaysia. This development may reshape the export competition landscape among major producing countries and warrants further monitoring.
Besides its own fundamentals, palm oil prices closely follow fluctuations in related markets. As a key player in the global vegetable oil market, palm oil prices are highly correlated with competing oils such as soybean oil. Yesterday, soybean oil prices on the Chicago Board of Trade and soybean and palm oil contracts on the Dalian Commodity Exchange in China both rose slightly, providing external support for palm oil. Furthermore, the slight strengthening of the Malaysian ringgit against the US dollar made dollar-denominated palm oil slightly more expensive for buyers holding foreign currency, constituting a minor negative factor.
The volatility in the crude oil market should not be ignored. Although oil prices slipped slightly yesterday from a four-day winning streak due to factors such as Venezuela's resumption of exports, supply concerns stemming from the situation in major Middle Eastern oil-producing countries continue to weigh on the market. Crude oil price movements affect palm oil through the biodiesel demand channel; weak crude oil prices reduce the attractiveness of palm oil as a biodiesel feedstock. Therefore, any sharp fluctuations in the international crude oil market will be transmitted to the palm oil sector.
Looking ahead, a well-known technical analyst pointed out that palm oil may retest the high of 4,147 ringgit per ton reached on January 13, a move driven by a previous wave. However, considering the significant fundamental change of Indonesia's B50 program being shelved, any upward breakout will require stronger and more sustained demand data to offset the impact of inventory levels and new negative news.
In summary, the palm oil market is currently at a juncture where bullish and bearish factors are fiercely intertwined. Short-term purchasing interest from India and China provides bottom support, while Malaysia's massive inventory and Indonesia's unexpected policy shift have limited upside potential. Market participants will now focus on: whether today's Malaysian export data for January 1-15 will confirm a sustained recovery in demand; the actual impact of Indonesia's increased export taxes on global palm oil trade flows; and the direction of crude oil prices. Until a decisive factor emerges that could break the current balance, palm oil prices are expected to continue oscillating within the support and resistance range identified by trader David Ng.
High inventory levels and a rebound in exports create a tug-of-war.
The core contradiction in the market right now lies in the pressure on the supply side and the potential improvement in demand. High inventory levels in Malaysia are an undeniable fact. David Ng, a trader at Kuala Lumpur-based trading firm Iceberg X, explicitly pointed out that high Malaysian inventory levels are the main reason for the downward pressure on prices. According to recent data, Malaysian palm oil inventories have climbed to a near seven-year high, breaking through the key psychological level of 3 million tons, which continues to put downward pressure on forward prices. However, Ng also added that stronger crude oil prices will provide upward momentum for palm oil in the short term. He believes that crude palm oil futures may find support at 3,950 ringgit per ton and encounter resistance at 4,100 ringgit per ton.
In contrast to high inventory levels, recent export data has shown positive signs, bringing a glimmer of hope to the market. Paramalingam Supramaniam, director of Selangor broker Pelindung Bestari, observed that the market is seeing linked buying activity with the rise in Chicago soybean oil and the Dalian market in China. He emphasized that January exports are building momentum, with the first 10 days showing strong growth, and the market expects the first 15 days to remain positive. "In the past two days, we have seen a rebound in demand interest from India and China," Supramaniam said. Shipping surveyors estimate that Malaysian palm oil product exports from January 1st to 10th increased by 17.7% to 29.2% compared to the same period last month. The market is closely watching the full export forecast for the first half of January, to be released today (January 15th).
Indonesia's sudden policy shift injects new variables into the market.
While Malaysia's inventory levels are a known negative factor, Indonesia's policy adjustment announced yesterday is a newly emerging key variable with far-reaching implications. On January 14, Indonesian officials announced that due to technical and financial considerations, they had cancelled the plan to implement B50 biodiesel (a blend of 50% palm oil-based biodiesel and 50% conventional diesel) this year, and would maintain the current B40 standard. This decision came as a surprise to the market.
As the world's largest palm oil producer, Indonesia's mandatory blending ratio for domestic biodiesel directly impacts global palm oil export supply. Previously, the market anticipated that the implementation of the B50 program would absorb an additional 2.2 million tons of crude palm oil in the second half of the year, forming a significant supporting factor for forward prices. Anilkumar Bagani, Head of Commodity Research at Sunvin Group in Mumbai, commented, "Indonesia's cancellation of the 2026 B50 program is a negative factor for palm oil prices, as the market had expected the additional blending ratio to absorb more crude palm oil." He further pointed out, "The price buffer provided by the B50 expectation will begin to weaken, and due to high carryover inventories, particularly in Malaysia, the price discount of palm oil relative to competing oils may widen."
Following this announcement, Malaysian palm oil futures gave back their earlier gains and ultimately closed lower. To maintain the sustainability of its biodiesel subsidy fund, the Indonesian government also announced that it would raise the export tax on crude palm oil to 12.5% starting March 1st, with corresponding increases in taxes on refined products. The Indonesian Palm Oil Farmers Association (POPSI) warned that this move could weaken the competitiveness of Indonesian palm oil in the global market, prompting buyers to turn to other suppliers such as Malaysia. This development may reshape the export competition landscape among major producing countries and warrants further monitoring.
Related Markets and Future Focus
Besides its own fundamentals, palm oil prices closely follow fluctuations in related markets. As a key player in the global vegetable oil market, palm oil prices are highly correlated with competing oils such as soybean oil. Yesterday, soybean oil prices on the Chicago Board of Trade and soybean and palm oil contracts on the Dalian Commodity Exchange in China both rose slightly, providing external support for palm oil. Furthermore, the slight strengthening of the Malaysian ringgit against the US dollar made dollar-denominated palm oil slightly more expensive for buyers holding foreign currency, constituting a minor negative factor.
The volatility in the crude oil market should not be ignored. Although oil prices slipped slightly yesterday from a four-day winning streak due to factors such as Venezuela's resumption of exports, supply concerns stemming from the situation in major Middle Eastern oil-producing countries continue to weigh on the market. Crude oil price movements affect palm oil through the biodiesel demand channel; weak crude oil prices reduce the attractiveness of palm oil as a biodiesel feedstock. Therefore, any sharp fluctuations in the international crude oil market will be transmitted to the palm oil sector.
Looking ahead, a well-known technical analyst pointed out that palm oil may retest the high of 4,147 ringgit per ton reached on January 13, a move driven by a previous wave. However, considering the significant fundamental change of Indonesia's B50 program being shelved, any upward breakout will require stronger and more sustained demand data to offset the impact of inventory levels and new negative news.
In summary, the palm oil market is currently at a juncture where bullish and bearish factors are fiercely intertwined. Short-term purchasing interest from India and China provides bottom support, while Malaysia's massive inventory and Indonesia's unexpected policy shift have limited upside potential. Market participants will now focus on: whether today's Malaysian export data for January 1-15 will confirm a sustained recovery in demand; the actual impact of Indonesia's increased export taxes on global palm oil trade flows; and the direction of crude oil prices. Until a decisive factor emerges that could break the current balance, palm oil prices are expected to continue oscillating within the support and resistance range identified by trader David Ng.
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