Short-term strength and long-term outlook: How much room for imagination is left for the upward momentum of palm oil prices?
2026-01-20 18:52:18
On Tuesday (January 20), palm oil futures on the Malaysian Derivatives Exchange closed higher, with the benchmark April contract rising 28 ringgit, or 0.69%, to settle at 4,095 ringgit per tonne. Supported by strengthened expectations of production cuts and improved export data, the market shrugged off some of the weakness in related edible oil markets and showed independent strength.
The core market logic has recently shifted to a game of short-term supply tightening. According to several traders and analysts based in Malaysia, the market generally expects a significant decline in Malaysian crude palm oil production in January, with the drop estimated at 15% to 17%. This strong expectation of reduced production constitutes the most crucial supporting factor for current prices. Typically, the first quarter is the seasonal low point for palm oil production, but this year's estimated decline is significantly higher than the historical average for the same period, raising market concerns about a substantial contraction in supply.
Meanwhile, positive signals emerged on the demand side. Data from shipping survey agencies showed that from January 1st to 20th, Malaysian palm oil product exports increased by 8.64% to 11.4% compared to the same period last month. This significant improvement in export data, coupled with expectations of production cuts, has jointly driven market sentiment towards optimism. Paramalingam Supramaniam, director of Selangor brokerage Pelindung Bestari, noted, "The market is currently supported as traders anticipate a sharp drop in January production of approximately 15% to 17%, and exports have improved significantly, indicating strong demand." He further emphasized, "Overall, if these two variables continue until March, ending stocks are likely to decline significantly." This view clearly outlines the current bullish trading theme: the short-term supply and demand situation may tighten more than expected.
From an external market perspective, a divergent pattern emerges. While vegetable oil contracts on the Dalian Commodity Exchange recorded gains, soybean oil prices on the Chicago Board of Trade fell slightly, indicating a lack of unified, strong drivers in the global edible oil sector. Crude oil prices remained firm, providing marginal support for the economic viability of palm oil as a biodiesel feedstock. Furthermore, recent global economic data, particularly from China, outperformed expectations, providing macroeconomic support for commodity markets, including crude oil, and indirectly stabilizing risk appetite in the vegetable oil market. The Malaysian ringgit remained stable against the US dollar, avoiding additional price disruptions caused by exchange rate fluctuations.
However, a longer-term outlook reveals a more cautious market sentiment, potentially contrasting with the current strong performance. A recent survey by a well-known institution indicates that market analysts expect the average price of Malaysian crude palm oil futures in 2026 to be slightly lower than in 2025. This medium- to long-term forecast is based on two main considerations: first, supply from major producing countries is expected to recover from the current trough and grow; second, global biofuel demand growth momentum may be relatively moderate, thus putting downward pressure on prices. This means that the current price surge, driven by short-term expectations of extreme production cuts, will face the test of the extent to which future supply recovers and demand materializes.
In summary, the palm oil market is currently caught between strong short-term fundamentals and cautious medium- to long-term expectations. The direct driver of prices is clearly the estimated 15%-17% production cut in January and over 8% export growth during the same period, creating a strong narrative of a potential rapid decline in inventories. Analyst Paramalingam Supramaniam directly points out this core logic. Key observations for the market going forward will focus on: first, whether the final actual production data this month can validate the current strong production cut expectations; second, whether the strong export momentum can continue in February and March, thus truly realizing the expectation of declining inventories; and finally, attention needs to be paid to Indonesia's production and policy developments, as well as the long-term impact of crude oil price trends on the economic benefits of biodiesel blending. Traders should be wary that if the production decline or export growth in the coming weeks falls short of current market expectations, prices may correct due to expectation adjustments; conversely, if the data continues to exceed expectations, the short-term tightness logic will be strengthened. The market will repeatedly weigh short-term realities against long-term expectations, potentially increasing volatility.
The core market logic has recently shifted to a game of short-term supply tightening. According to several traders and analysts based in Malaysia, the market generally expects a significant decline in Malaysian crude palm oil production in January, with the drop estimated at 15% to 17%. This strong expectation of reduced production constitutes the most crucial supporting factor for current prices. Typically, the first quarter is the seasonal low point for palm oil production, but this year's estimated decline is significantly higher than the historical average for the same period, raising market concerns about a substantial contraction in supply.
Meanwhile, positive signals emerged on the demand side. Data from shipping survey agencies showed that from January 1st to 20th, Malaysian palm oil product exports increased by 8.64% to 11.4% compared to the same period last month. This significant improvement in export data, coupled with expectations of production cuts, has jointly driven market sentiment towards optimism. Paramalingam Supramaniam, director of Selangor brokerage Pelindung Bestari, noted, "The market is currently supported as traders anticipate a sharp drop in January production of approximately 15% to 17%, and exports have improved significantly, indicating strong demand." He further emphasized, "Overall, if these two variables continue until March, ending stocks are likely to decline significantly." This view clearly outlines the current bullish trading theme: the short-term supply and demand situation may tighten more than expected.
From an external market perspective, a divergent pattern emerges. While vegetable oil contracts on the Dalian Commodity Exchange recorded gains, soybean oil prices on the Chicago Board of Trade fell slightly, indicating a lack of unified, strong drivers in the global edible oil sector. Crude oil prices remained firm, providing marginal support for the economic viability of palm oil as a biodiesel feedstock. Furthermore, recent global economic data, particularly from China, outperformed expectations, providing macroeconomic support for commodity markets, including crude oil, and indirectly stabilizing risk appetite in the vegetable oil market. The Malaysian ringgit remained stable against the US dollar, avoiding additional price disruptions caused by exchange rate fluctuations.
However, a longer-term outlook reveals a more cautious market sentiment, potentially contrasting with the current strong performance. A recent survey by a well-known institution indicates that market analysts expect the average price of Malaysian crude palm oil futures in 2026 to be slightly lower than in 2025. This medium- to long-term forecast is based on two main considerations: first, supply from major producing countries is expected to recover from the current trough and grow; second, global biofuel demand growth momentum may be relatively moderate, thus putting downward pressure on prices. This means that the current price surge, driven by short-term expectations of extreme production cuts, will face the test of the extent to which future supply recovers and demand materializes.
In summary, the palm oil market is currently caught between strong short-term fundamentals and cautious medium- to long-term expectations. The direct driver of prices is clearly the estimated 15%-17% production cut in January and over 8% export growth during the same period, creating a strong narrative of a potential rapid decline in inventories. Analyst Paramalingam Supramaniam directly points out this core logic. Key observations for the market going forward will focus on: first, whether the final actual production data this month can validate the current strong production cut expectations; second, whether the strong export momentum can continue in February and March, thus truly realizing the expectation of declining inventories; and finally, attention needs to be paid to Indonesia's production and policy developments, as well as the long-term impact of crude oil price trends on the economic benefits of biodiesel blending. Traders should be wary that if the production decline or export growth in the coming weeks falls short of current market expectations, prices may correct due to expectation adjustments; conversely, if the data continues to exceed expectations, the short-term tightness logic will be strengthened. The market will repeatedly weigh short-term realities against long-term expectations, potentially increasing volatility.
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- 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.
