On Monday (January 19), palm oil futures on the Malaysian Derivatives Exchange closed modestly lower in Asian trading. The market fluctuated due to a confluence of factors, including pressure from policy news from China and Indonesia, and support from holiday stockpiling demand and a relative price advantage. At midday break, the benchmark April contract closed at 4069 ringgit per metric tonne, down 3 ringgit on the day.



The downward pressure on the market mainly stems from two recent fundamental changes. First, China announced a significant reduction in import tariffs on Canadian canola from the current 84% to a total of 15%. Anilkumar Bagani, head of commodities research at Mumbai-based research firm Sunvin Group, points out that this move will enhance the import attractiveness of price-competitive canola and its products (such as canola oil), potentially creating structural substitution pressure on import demand for other vegetable oils, including palm oil, in the future. Second, the Indonesian government decided to cancel its planned mandatory blending program for B50 biodiesel, originally scheduled for this year. This adjustment will directly lead to a downward revision of palm oil-based biofuel demand forecasts. Bagani believes this news has had a significant impact on market sentiment in the short term.

However, the downside potential of the market is also significantly limited. Bagani further analyzed that the persistent price discount of palm oil relative to soybean oil and sunflower oil makes it still attractive to price-sensitive buyers in the spot market. He added, "The upcoming Lunar New Year and Ramadan holiday season demand, coupled with the upcoming seasonal low in palm oil production, will continue to provide a floor for prices." The market is closely watching the export forecast data for January 1-20, to be released on January 20 (evening of January 20 Beijing time), to gauge the actual strength of holiday stockpiling.

Observing related markets, the Dalian Commodity Exchange's soybean oil main contract rose 0.45% intraday, while the palm oil contract also recorded a 0.3% increase, indicating relatively stable sentiment in the domestic edible oil sector. Overnight, the Chicago Board of Trade (CBOT) soybean oil market was closed for a public holiday; its subsequent movements will continue to affect the price ratios in the global edible oil market. Furthermore, international crude oil prices stabilized after rising last Friday, with easing geopolitical tensions reducing the risk of supply disruptions. The strength or weakness of crude oil prices directly affects the economic viability of palm oil as a biodiesel feedstock, making it a long-term variable that cannot be ignored. The Malaysian ringgit appreciated slightly by 0.05% against the US dollar intraday, slightly increasing the cost of dollar-denominated palm oil for overseas buyers, but the intraday impact was limited.

Regarding the current technical pattern, a well-known technical analyst pointed out that palm oil prices are currently trading within a neutral range of 4051 to 4088 ringgit per tonne, and a breakout could indicate the short-term direction. Kenanga Futures, in its report today, noted that the market decline was partly due to the weakness following overnight Chicago soybean oil, while profit-taking after recent price increases was also suppressing market sentiment. The firm sets the near-term support level for palm oil futures at 4000 ringgit per tonne and the resistance level at 4115 ringgit per tonne.

Logical Analysis and Future Focus

In summary, today's market decline was more due to the impact of sudden policy news than a fundamental reversal in supply and demand. China's adjustment of rapeseed tariffs may alter the import structure of some vegetable oils in the long term, but given China's stable overall edible oil consumption growth and diversified import source strategy, the extent of its impact on palm oil demand still needs time to be verified. The shelving of Indonesia's B50 program reflects the government's realistic considerations in balancing biofuel promotion targets with domestic palm oil supply and fiscal subsidy pressures. While this is a short-term negative for market sentiment, it does not shake the fundamental demand under existing mandatory blending policies such as B35.

The core contradiction in the current market lies in the interplay between short-term negative news and medium-term seasonal positive factors (low production season, holiday demand). The relative price advantage keeps palm oil competitive in the export market, limiting the possibility of rapid inventory accumulation. Traders should pay close attention to the following points: first, whether Malaysian export data in the next two weeks can confirm strong holiday stockpiling demand; second, the specific implementation details and changes in export pace after Indonesia adjusts its biodiesel policy; and third, the potential impact of weather in South American soybean producing regions on global soybean oil supply expectations. Although some long-term views suggest that policy adjustments may bring pressure, it must be noted that current price levels have partially priced in these expectations, and the support from seasonal production contraction is about to emerge. The momentum for a sustained sharp decline in the market at current levels may be limited; it is more likely to enter a phase of wide-range fluctuations, awaiting the emergence of new driving forces.