Malaysian palm oil futures ended a two-day correction on Wednesday (February 4), closing slightly higher. The benchmark April delivery contract on the BMD exchange rose 7 ringgit, or 0.17%, to settle at 4,222 ringgit per tonne. The market stabilized temporarily after the previous day's adjustment, primarily supported by rising external vegetable oil markets and a key fundamental shift in expectations: a ten-month inventory build-up cycle may be nearing its end.

External linkages and inventory expectations: the core logic supporting current prices

The stabilization and rebound in prices during the day was closely linked to the influence of external markets. Related commodities on the Dalian Commodity Exchange performed strongly, with the most actively traded soybean oil and palm oil futures contracts both recording a 0.42% increase. A trader based in Kuala Lumpur noted, "Crude palm oil futures are following the trend in the Dalian market, while awaiting new guidance from next week's palm oil conference." This statement clearly outlines the current short-term driving factors and wait-and-see sentiment in the market. As an important part of the global vegetable oil trade, palm oil prices have always maintained a close correlation with competing oils such as soybean oil.

However, the potential structural changes are of greater concern. According to a survey released Wednesday by a well-known institution, Malaysian palm oil stocks are expected to end their ten-month growth streak by the end of January. The core logic behind this expectation lies in the combined effect of surging exports and a seasonal slowdown in production. Data from shipping surveyors supports this view: data from AmSpec Agri Malaysia and Intertek Testing Services both show that Malaysian palm oil product exports in January are expected to increase by 14.9% to 17.9% month-on-month. This strong export performance precisely offsets the impact of the traditional off-season for production.

Strong demand further reinforces this logic. A well-known institution previously cited trader data indicating that India's palm oil imports surged 51% in January, reaching a four-month high, while its soybean oil imports fell to a 19-month low. This clearly reveals a key characteristic of current global vegetable oil trade flows: the deep discount of palm oil to soybean oil is substantially changing the purchasing patterns of major importing countries, driving strong demand towards palm oil.

Institutional Viewpoint: A Dialogue Between Technical and Fundamental Analysis

While the market focuses on potential fundamental shifts, technical analysis has also defined a watchlist for traders. Wang Tao, a well-known technical analyst, points out that palm oil may test the support level of 4,201 ringgit per tonne. A break below this level could trigger a price drop towards the 4,115-4,158 ringgit range. The current closing price is slightly above this key support level, indicating that the market has temporarily achieved a fragile balance in the struggle between bulls and bears.

While short-term technical indicators suggest downside risks, shifts in fundamental expectations—particularly a potential inflection point in the inventory cycle—constitute a significant buffer against a sharp market decline. This delicate balance between technical support levels and potential fundamental upside is a key factor that market participants need to carefully weigh.

Market Outlook: Focus on Expectation Validation and New Drivers

In summary, the palm oil market is at a critical juncture. The recent price stabilization is not due to a single driver, but rather the result of a combination of external market forces, strong export data, and most importantly—expectations of an inventory inflection point. The short-term market logic is clear: while awaiting new guidance from next week's industry conference, traders are closely watching the final release of official January inventory data to verify whether inventories have indeed entered a downward trend as market surveys suggest.

From a longer-term perspective, if the inventory inflection point is confirmed, market sentiment may shift from the current wait-and-see approach to more positive pricing. However, this process will take time and remains uncertain, including factors such as the speed of production recovery in producing regions, the sustainability of Indian purchases, and price changes in competing commodities like soybean oil. Any optimistic outlook for the medium to long term must be based on confirmation of short-term inventory data and the assumption that the external market environment does not deteriorate.

The current market silence is actually a build-up of energy for the next directional move. Traders should focus on close monitoring, paying close attention to whether the upcoming official inventory data will confirm market expectations, and whether next week's industry conference will release new signals regarding production, demand, or policy. Until these expectations are validated, the market will likely remain in a range-bound pattern, fluctuating between key technical levels and fundamental narratives.