Palm oil: Key resistance and production cut support – which will prevail?
2026-01-23 18:35:52
On Friday (January 23), the most active palm oil futures contract on the Bursa Malaysia Derivatives exchange closed lower. The benchmark April contract fell 23 ringgit to settle at 4,174 ringgit per tonne. Despite the intraday pullback, the contract still rose 2.6% this week, on track for its third consecutive weekly gain. The volatility stemmed from some investors taking profits before the weekend, coupled with the strengthening of the ringgit against the US dollar, which increased the cost of dollar-denominated palm oil for overseas buyers, thus suppressing prices. The ringgit appreciated 0.94% against the US dollar on the day.
The short-term correction in the market did not obscure the multiple fundamental factors supporting the overall market. Analysts at Kenanga Futures, a well-known institution, pointed out in their market commentary that although the market softened overnight due to weak performance in competitive vegetable oils and profit-taking pressure after recent gains, the downside was limited. They believe key supporting factors stem from the start of the seasonal production cut cycle in Indonesia and Malaysia, as well as upcoming holiday purchasing demand. Furthermore, the continued price discount of palm oil relative to soybean oil maintains its significant demand competitiveness in the global vegetable oil market. The institution judges the technical support and resistance levels for crude palm oil (CPO) futures to be 4115 ringgit and 4225 ringgit per ton, respectively. This view echoes the day's price action, where the high failed to break the previous resistance and the price retraced to seek support.
Traders in Kuala Lumpur corroborated this market sentiment, with investors locking in profits before the weekend, coupled with a stronger ringgit, breaking the recent upward trend. Looking at related markets, the main soybean oil contract on the Dalian Commodity Exchange rose slightly by 0.07%, while the palm oil contract fell slightly by 0.04%. Soybean oil prices on the Chicago Board of Trade (CBOT) also fell slightly by 0.07%. This close price linkage between competing vegetable oils means that significant fluctuations in one commodity can quickly spread to other markets. The current cost advantage of palm oil relative to soybean oil is a key source of its resilient demand.
In addition to support from the food sector, dynamics in the energy market also offer potential gains for palm oil. International crude oil prices have recently rebounded due to renewed geopolitical tensions raising concerns about supply stability in major oil-producing regions. Stronger crude oil prices enhance the economic viability of using palm oil as a biodiesel feedstock, opening up another avenue for demand-side growth. However, the sustainability of this bullish factor largely depends on the subsequent trend of crude oil prices and the actual implementation of biodiesel policies in various countries.
From a technical analysis perspective, a well-known institution's technical analyst pointed out that after failing to effectively break through the resistance level of 4211 ringgit per ton, palm oil contracts may face downward pressure towards the 4132 ringgit per ton level. This technical view is consistent with the current market's consolidation phase after a period of continuous gains, suggesting that traders should pay close attention to the defense and resistance levels at key price levels.
In summary, the palm oil market is currently at a juncture where bullish and bearish factors intertwine. Seasonal production cuts and holiday stockpiling provide solid price support, while the deep discount relative to soybean oil stabilizes export demand. Short-term challenges primarily stem from the financial sector, including fluctuations in the ringgit exchange rate and profit-taking after continuous price increases. In the coming weeks, market focus will be on monthly production and inventory data from major producing countries to verify the actual strength of the production cut cycle. Simultaneously, the purchasing pace of major importing countries like India and the extent to which the biodiesel theme driven by crude oil prices will be key variables influencing medium- to long-term price directions. Despite short-term technical correction pressures, the market is likely to maintain a generally bullish and volatile pattern unless there are fundamental changes in the core economic fundamentals.
The short-term correction in the market did not obscure the multiple fundamental factors supporting the overall market. Analysts at Kenanga Futures, a well-known institution, pointed out in their market commentary that although the market softened overnight due to weak performance in competitive vegetable oils and profit-taking pressure after recent gains, the downside was limited. They believe key supporting factors stem from the start of the seasonal production cut cycle in Indonesia and Malaysia, as well as upcoming holiday purchasing demand. Furthermore, the continued price discount of palm oil relative to soybean oil maintains its significant demand competitiveness in the global vegetable oil market. The institution judges the technical support and resistance levels for crude palm oil (CPO) futures to be 4115 ringgit and 4225 ringgit per ton, respectively. This view echoes the day's price action, where the high failed to break the previous resistance and the price retraced to seek support.
Traders in Kuala Lumpur corroborated this market sentiment, with investors locking in profits before the weekend, coupled with a stronger ringgit, breaking the recent upward trend. Looking at related markets, the main soybean oil contract on the Dalian Commodity Exchange rose slightly by 0.07%, while the palm oil contract fell slightly by 0.04%. Soybean oil prices on the Chicago Board of Trade (CBOT) also fell slightly by 0.07%. This close price linkage between competing vegetable oils means that significant fluctuations in one commodity can quickly spread to other markets. The current cost advantage of palm oil relative to soybean oil is a key source of its resilient demand.
In addition to support from the food sector, dynamics in the energy market also offer potential gains for palm oil. International crude oil prices have recently rebounded due to renewed geopolitical tensions raising concerns about supply stability in major oil-producing regions. Stronger crude oil prices enhance the economic viability of using palm oil as a biodiesel feedstock, opening up another avenue for demand-side growth. However, the sustainability of this bullish factor largely depends on the subsequent trend of crude oil prices and the actual implementation of biodiesel policies in various countries.
From a technical analysis perspective, a well-known institution's technical analyst pointed out that after failing to effectively break through the resistance level of 4211 ringgit per ton, palm oil contracts may face downward pressure towards the 4132 ringgit per ton level. This technical view is consistent with the current market's consolidation phase after a period of continuous gains, suggesting that traders should pay close attention to the defense and resistance levels at key price levels.
In summary, the palm oil market is currently at a juncture where bullish and bearish factors intertwine. Seasonal production cuts and holiday stockpiling provide solid price support, while the deep discount relative to soybean oil stabilizes export demand. Short-term challenges primarily stem from the financial sector, including fluctuations in the ringgit exchange rate and profit-taking after continuous price increases. In the coming weeks, market focus will be on monthly production and inventory data from major producing countries to verify the actual strength of the production cut cycle. Simultaneously, the purchasing pace of major importing countries like India and the extent to which the biodiesel theme driven by crude oil prices will be key variables influencing medium- to long-term price directions. Despite short-term technical correction pressures, the market is likely to maintain a generally bullish and volatile pattern unless there are fundamental changes in the core economic fundamentals.
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