Production cuts support demand concerns: Palm oil prices have reached a critical point.
2026-02-05 19:13:21
On Thursday (February 5), the benchmark palm oil futures contract on the Malaysian Derivatives Exchange (BMD) closed lower. As of approximately 7 PM Beijing time, the most actively traded April contract fell 17 ringgit, or 0.4%, to settle at 4,208 ringgit per tonne. The market was pressured by both weakness in related vegetable oil markets and uncertainty on the demand side.
On that day, external markets significantly dragged down palm oil prices. Competitive edible oil varieties on the Dalian Commodity Exchange weakened, with soybean oil futures falling 0.52%, while palm oil futures fell even more sharply, by 1.35%. Meanwhile, soybean oil prices on the Chicago Board of Trade (CBOT) also closed slightly lower. Because palm oil faces intense consumer substitution competition with soybean oil, rapeseed oil, and other varieties in the global vegetable oil market, the price linkage between related markets is significant; the weakness in external edible oils directly affected the sentiment of market participants.
Besides external market pressures, concerns about demand are also a current market focus. Paramalingam Supramaniam, director of the Selangor brokerage firm Pelindung Bestari, pointed out: "The market is trying to find a bottom; the strengthening ringgit is not helping. So far, demand has been a worrying issue, especially for forward contracts." His view directly points out one of the core contradictions in the current market. The Malaysian ringgit, the pricing currency for palm oil trade, has been strengthening against the US dollar for several months, reaching its highest level since April 2018 on January 28. Although the ringgit fell 0.38% against the US dollar on February 5, its overall strength still makes dollar-denominated palm oil more expensive for overseas buyers, thus suppressing purchasing demand. Recent market discussions about the inventory levels of major importing countries and the slowdown in purchasing pace have further exacerbated the cautious atmosphere on the demand side.
However, the market is not entirely without support. There are signs of seasonal tightening on the supply side. A recent survey by a well-known institution indicates that Malaysian palm oil stocks at the end of January are expected to end their 10-month streak of growth and decline, due to strong exports during the seasonal production slowdown. This expectation is shared by industry insiders. Paramalingam Supramaniam added, "However, the lower production in January will have an impact extending into February, which will provide support for palm oil prices." The first quarter of each year is typically the seasonal production slowdown period for palm oil in Southeast Asia, with factors such as rainfall potentially affecting the harvesting of fresh fruit bunches and oil extraction rates. If the decline in production exceeds expectations, it will largely offset the negative impact of weak demand, becoming an important "stabilizer" for prices.
From a technical analysis perspective, the market is currently at a critical observation window. Some technical analysts point out that palm oil prices are exhibiting a neutral oscillation pattern within the range of 4201 to 4254 ringgit per ton. A subsequent effective breakout from this range will provide a clearer signal regarding the short-term trend.
In summary, the palm oil market is currently in a phase of intense competition between bullish and bearish factors. The bearish logic is mainly based on relatively weak external market transmission and concerns about high prices suppressing demand; while the bullish strategy relies primarily on expectations of supply tightening due to seasonal production reductions in producing regions. In the short term, the market may need more concrete data to break the balance, such as the upcoming official Malaysian production, sales, and inventory data for January, the specific extent of which inventory reduction will directly impact market confidence. Furthermore, the subsequent trend of the Malaysian Ringgit exchange rate, the development of relevant policies in Indonesia, and the actual performance of edible oil consumption during the Chinese New Year and subsequent restocking demand will all be key variables influencing market trends in the coming weeks. In the long term, despite current concerns about demand, if the overall global supply and demand pattern for vegetable oils tightens due to factors such as weather in other major producing countries, palm oil prices may still gain upward momentum, but this requires concrete signs of improvement on the demand side. Traders should closely monitor the evolution of the aforementioned fundamental factors to determine the final direction the market will take from the current volatile pattern.
On that day, external markets significantly dragged down palm oil prices. Competitive edible oil varieties on the Dalian Commodity Exchange weakened, with soybean oil futures falling 0.52%, while palm oil futures fell even more sharply, by 1.35%. Meanwhile, soybean oil prices on the Chicago Board of Trade (CBOT) also closed slightly lower. Because palm oil faces intense consumer substitution competition with soybean oil, rapeseed oil, and other varieties in the global vegetable oil market, the price linkage between related markets is significant; the weakness in external edible oils directly affected the sentiment of market participants.
Besides external market pressures, concerns about demand are also a current market focus. Paramalingam Supramaniam, director of the Selangor brokerage firm Pelindung Bestari, pointed out: "The market is trying to find a bottom; the strengthening ringgit is not helping. So far, demand has been a worrying issue, especially for forward contracts." His view directly points out one of the core contradictions in the current market. The Malaysian ringgit, the pricing currency for palm oil trade, has been strengthening against the US dollar for several months, reaching its highest level since April 2018 on January 28. Although the ringgit fell 0.38% against the US dollar on February 5, its overall strength still makes dollar-denominated palm oil more expensive for overseas buyers, thus suppressing purchasing demand. Recent market discussions about the inventory levels of major importing countries and the slowdown in purchasing pace have further exacerbated the cautious atmosphere on the demand side.
However, the market is not entirely without support. There are signs of seasonal tightening on the supply side. A recent survey by a well-known institution indicates that Malaysian palm oil stocks at the end of January are expected to end their 10-month streak of growth and decline, due to strong exports during the seasonal production slowdown. This expectation is shared by industry insiders. Paramalingam Supramaniam added, "However, the lower production in January will have an impact extending into February, which will provide support for palm oil prices." The first quarter of each year is typically the seasonal production slowdown period for palm oil in Southeast Asia, with factors such as rainfall potentially affecting the harvesting of fresh fruit bunches and oil extraction rates. If the decline in production exceeds expectations, it will largely offset the negative impact of weak demand, becoming an important "stabilizer" for prices.
From a technical analysis perspective, the market is currently at a critical observation window. Some technical analysts point out that palm oil prices are exhibiting a neutral oscillation pattern within the range of 4201 to 4254 ringgit per ton. A subsequent effective breakout from this range will provide a clearer signal regarding the short-term trend.
In summary, the palm oil market is currently in a phase of intense competition between bullish and bearish factors. The bearish logic is mainly based on relatively weak external market transmission and concerns about high prices suppressing demand; while the bullish strategy relies primarily on expectations of supply tightening due to seasonal production reductions in producing regions. In the short term, the market may need more concrete data to break the balance, such as the upcoming official Malaysian production, sales, and inventory data for January, the specific extent of which inventory reduction will directly impact market confidence. Furthermore, the subsequent trend of the Malaysian Ringgit exchange rate, the development of relevant policies in Indonesia, and the actual performance of edible oil consumption during the Chinese New Year and subsequent restocking demand will all be key variables influencing market trends in the coming weeks. In the long term, despite current concerns about demand, if the overall global supply and demand pattern for vegetable oils tightens due to factors such as weather in other major producing countries, palm oil prices may still gain upward momentum, but this requires concrete signs of improvement on the demand side. Traders should closely monitor the evolution of the aforementioned fundamental factors to determine the final direction the market will take from the current volatile pattern.
- Risk Warning and Disclaimer
- 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.
