Palm oil hovers at a critical juncture: Demand is showing initial signs of improvement, so why is the market still sluggish?
2026-01-15 18:20:31
On Thursday (January 15), palm oil futures on the Malaysian Derivatives Exchange continued their weak trend. At the close, the benchmark March delivery contract fell 60 ringgit to settle at 3,980 ringgit per tonne, with the intraday trading range nearing a key support level. The market was under overall pressure throughout the day, with price fluctuations influenced by a combination of external market factors and its own fundamentals.
The market weakness that day was not an isolated event. In the morning session, the benchmark contract had already fallen 23 ringgit, a drop of 0.57%. Kuala Lumpur trader David Ng pointed out that the synchronized weakness in crude oil prices and competing edible oils—particularly soybean oil on the Chicago Board of Trade (CBOT) and soybean and palm oil contracts on the Dalian Commodity Exchange in China—directly dragged down palm oil prices. Furthermore, persistently high inventory levels continued to suppress market sentiment. From a technical perspective, renowned technical analyst Wang Tao pointed out that palm oil prices have broken below an upward trend line and may test the January 5th low of 3967 ringgit per ton. David Ng believes that the near-term support level for crude palm oil futures is at 3900 ringgit per ton, and the resistance level is at 4150 ringgit per ton.
A deeper negative factor stems from a revised forecast for biodiesel demand. Indonesian government officials have clarified that, due to technical and financial considerations, they will abandon their plan to implement a mandatory B50 biodiesel blending scheme this year, instead maintaining the current B40 standard. This decision alleviated market concerns that palm oil supply might become even tighter, weakening a potential support level for prices from the demand side. Meanwhile, international crude oil prices fell by more than 2% during Asian trading hours due to a slight easing of geopolitical tensions. Weaker crude oil prices reduced the cost attractiveness of palm oil as a biodiesel feedstock, further pressuring prices.
Despite the aforementioned pressures, the monthly export data released that day presented positive signals, providing some balance to the market. Data from two well-known independent testing agencies showed a significant month-on-month increase in Malaysian palm oil product exports in the first half of January. AmSpec Agri Malaysia data showed that exports from January 1st to 15th reached 690,642 tons, a 17.5% increase compared to 587,657 tons in the same period of December. Data from another agency, Intertek Testing Services (ITS), showed exports of 727,440 tons, a month-on-month increase of 18.6%.
Detailed data reveals the structure of the growth: refined palm oil (RBD) and crude palm oil (CPO) were the main contributors. ITS data shows that exports to the EU increased significantly from 102,482 tons to 141,750 tons; exports to India and the subcontinent also saw a slight increase from 169,500 tons to 179,495 tons. However, it is noteworthy that exports to the Chinese market declined sharply during the same period, from 85,320 tons to 18,425 tons. This change may reflect a shift in purchasing pace or destination at a specific point in time, and its sustainability still needs to be verified by subsequent data. Overall, the double-digit month-on-month export growth indicates that international demand is recovering at the beginning of the year, which helps alleviate Malaysia's high inventory pressure.
The core contradiction in the current market lies in the contrast between a significant improvement in export demand on one hand, and continued pressure from falling prices of related commodities, policy adjustments in key demand countries, and high inventory levels on the other. Trader David Ng's view encapsulates this tug-of-war in the market, mentioning both external drags and internal inventory pressures.
The shelving of Indonesia's B50 program is a key source of recent "expectation discrepancies." The market had previously anticipated additional demand from higher blending ratios, but this expectation has now failed to materialize, creating a new negative factor. Meanwhile, fluctuations in the crude oil market affect palm oil through two channels: the economics of biodiesel production and global macroeconomic sentiment. Although the ringgit weakened slightly against the US dollar that day, theoretically making palm oil more price-attractive to overseas buyers, this positive effect was overshadowed by larger negative factors in the market that day.
Looking ahead, the market's focus will be on several aspects. First, whether Malaysia's export data for the entire month of January can maintain the strong momentum of the first half of the month will be key to verifying the strength of the demand recovery. Second, the market needs to continue to monitor the implementation of Indonesia's B40 program and whether any new energy policies will be introduced in the future. In addition, the price trends of competing edible oils (soybean oil and sunflower oil) and the direction of the crude oil market will continue to be important external variables affecting palm oil.
While in the medium to long term, weather conditions in major Southeast Asian producing countries, labor supply, and the global vegetable oil supply-demand balance remain fundamental determinants of price trends, in the short term, the market is digesting the expected adjustments resulting from changes in Indonesian policy. The recovery in export data has indeed provided downside support, but upside potential for palm oil prices may be limited until inventory pressures substantially ease or related markets stabilize. Traders need to closely monitor the shifts in the weighting of these bullish and bearish factors, particularly whether the sustainability of export growth can ultimately translate into substantial inventory reduction. This may be the next key point to observe whether the market can establish a solid bottom and regain momentum.
Market Background: Correction under Multiple Pressures
The market weakness that day was not an isolated event. In the morning session, the benchmark contract had already fallen 23 ringgit, a drop of 0.57%. Kuala Lumpur trader David Ng pointed out that the synchronized weakness in crude oil prices and competing edible oils—particularly soybean oil on the Chicago Board of Trade (CBOT) and soybean and palm oil contracts on the Dalian Commodity Exchange in China—directly dragged down palm oil prices. Furthermore, persistently high inventory levels continued to suppress market sentiment. From a technical perspective, renowned technical analyst Wang Tao pointed out that palm oil prices have broken below an upward trend line and may test the January 5th low of 3967 ringgit per ton. David Ng believes that the near-term support level for crude palm oil futures is at 3900 ringgit per ton, and the resistance level is at 4150 ringgit per ton.
A deeper negative factor stems from a revised forecast for biodiesel demand. Indonesian government officials have clarified that, due to technical and financial considerations, they will abandon their plan to implement a mandatory B50 biodiesel blending scheme this year, instead maintaining the current B40 standard. This decision alleviated market concerns that palm oil supply might become even tighter, weakening a potential support level for prices from the demand side. Meanwhile, international crude oil prices fell by more than 2% during Asian trading hours due to a slight easing of geopolitical tensions. Weaker crude oil prices reduced the cost attractiveness of palm oil as a biodiesel feedstock, further pressuring prices.
Fundamental Highlights: Significant Rebound in Export Data
Despite the aforementioned pressures, the monthly export data released that day presented positive signals, providing some balance to the market. Data from two well-known independent testing agencies showed a significant month-on-month increase in Malaysian palm oil product exports in the first half of January. AmSpec Agri Malaysia data showed that exports from January 1st to 15th reached 690,642 tons, a 17.5% increase compared to 587,657 tons in the same period of December. Data from another agency, Intertek Testing Services (ITS), showed exports of 727,440 tons, a month-on-month increase of 18.6%.
Detailed data reveals the structure of the growth: refined palm oil (RBD) and crude palm oil (CPO) were the main contributors. ITS data shows that exports to the EU increased significantly from 102,482 tons to 141,750 tons; exports to India and the subcontinent also saw a slight increase from 169,500 tons to 179,495 tons. However, it is noteworthy that exports to the Chinese market declined sharply during the same period, from 85,320 tons to 18,425 tons. This change may reflect a shift in purchasing pace or destination at a specific point in time, and its sustainability still needs to be verified by subsequent data. Overall, the double-digit month-on-month export growth indicates that international demand is recovering at the beginning of the year, which helps alleviate Malaysia's high inventory pressure.
Institutional Views and Market Logic
The core contradiction in the current market lies in the contrast between a significant improvement in export demand on one hand, and continued pressure from falling prices of related commodities, policy adjustments in key demand countries, and high inventory levels on the other. Trader David Ng's view encapsulates this tug-of-war in the market, mentioning both external drags and internal inventory pressures.
The shelving of Indonesia's B50 program is a key source of recent "expectation discrepancies." The market had previously anticipated additional demand from higher blending ratios, but this expectation has now failed to materialize, creating a new negative factor. Meanwhile, fluctuations in the crude oil market affect palm oil through two channels: the economics of biodiesel production and global macroeconomic sentiment. Although the ringgit weakened slightly against the US dollar that day, theoretically making palm oil more price-attractive to overseas buyers, this positive effect was overshadowed by larger negative factors in the market that day.
Future Focus and Logical Deduction
Looking ahead, the market's focus will be on several aspects. First, whether Malaysia's export data for the entire month of January can maintain the strong momentum of the first half of the month will be key to verifying the strength of the demand recovery. Second, the market needs to continue to monitor the implementation of Indonesia's B40 program and whether any new energy policies will be introduced in the future. In addition, the price trends of competing edible oils (soybean oil and sunflower oil) and the direction of the crude oil market will continue to be important external variables affecting palm oil.
While in the medium to long term, weather conditions in major Southeast Asian producing countries, labor supply, and the global vegetable oil supply-demand balance remain fundamental determinants of price trends, in the short term, the market is digesting the expected adjustments resulting from changes in Indonesian policy. The recovery in export data has indeed provided downside support, but upside potential for palm oil prices may be limited until inventory pressures substantially ease or related markets stabilize. Traders need to closely monitor the shifts in the weighting of these bullish and bearish factors, particularly whether the sustainability of export growth can ultimately translate into substantial inventory reduction. This may be the next key point to observe whether the market can establish a solid bottom and regain momentum.
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