Palm oil market analysis: Initial inventory decline fails to mask market weakness; market fluctuates and adjusts amid mixed bullish and bearish factors.
2026-02-10 18:43:29
On Tuesday (February 10), palm oil futures on the Malaysian Derivatives Exchange ended a period of volatile trading, with the benchmark April contract closing at 4,097 ringgit per tonne, down 63 ringgit, or 1.51%, for the day. The day's price action clearly reflected the complex market sentiment following the release of key data: the Malaysian Palm Oil Board (MPOB) released January inventory data, which provided much-needed bullish support, but weak export data released at the same time, along with drag from external markets, collectively suppressed any potential price rebound.
The MPOB's monthly report released on Tuesday was undoubtedly the focus of market attention this week. Data showed that as of the end of January 2026, Malaysian palm oil stocks fell sharply by 7.72% month-on-month to their lowest level in 11 months. This is the first decline after ten consecutive months of increases in the country's stocks, directly driven by strong export growth, with exports surging by more than 25% month-on-month, while production fell by 7.65% month-on-month due to seasonal factors, hitting a 10-month low. This inventory inflection point theoretically provides some price support for the market.
However, the strength of this bullish signal needs careful evaluation. Export data updated on the same day as the data release by independent inspection agency AmSpec Agri Malaysia showed that from February 1st to 10th, Malaysian palm oil product exports totaled only 399,995 tons, a sharp drop of 14.3% compared to 466,457 tons in the same period last month. This strongly suggests that the export surge in January may be unsustainable, and there are signs of a rapid cooling in demand in February. Whether the decline in inventory is the beginning of a trend reversal or just a flash in the pan remains to be seen and requires further verification from subsequent data. The market clearly has doubts about this, which is one of the core reasons why prices opened high but closed lower that day.
In addition to its own supply and demand data, pressure from related vegetable oil markets is also significant. On February 10th, Beijing time, the main soybean oil futures contract on the Dalian Commodity Exchange fell 0.3%, and the palm oil futures contract fell 0.69%. Meanwhile, soybean oil prices on the Chicago Board of Trade also fell 0.64%. As a crucial member of the global edible oil market, palm oil's price is highly correlated with substitutes such as soybean oil and rapeseed oil. Major consuming countries often switch between different oils based on cost-effectiveness in their purchasing strategies. The current general weakness of competing edible oils directly limits the potential for a rebound in palm oil prices.
From a longer-term supply structure perspective, capacity challenges remain. Industry data shows that the area of aging oil palm plantations in Malaysia is expected to increase from the current approximately 1.7 million hectares to 2 million hectares by 2027. This indicates that without large-scale replacement, the long-term yield potential of the world's second-largest producer will face pressure. In contrast, major producer Indonesia is actively providing financial support to smallholder farmers through channels such as the "Manor Crop Fund" to promote replanting programs. According to official sources this Tuesday, the fund has already disbursed approximately 10.89 trillion Indonesian rupiah, aiming to improve the planting efficiency and yields of smallholder farmers. The different paths taken by the two countries in maintaining and improving capacity will profoundly impact the global palm oil supply landscape in the medium to long term.
Demand on the demand side exhibits a clear regional differentiation. Analysts generally expect demand in the Indian market to rebound in 2026, as current prices have fallen significantly from previous highs, enhancing its purchasing appeal. However, this growth is not without its limitations. Some argue that competition from Chinese soybean oil will restrict the expansion of palm oil demand in the Indian market, and buyers will place greater emphasis on cost-effectiveness when making purchases.
In the Chinese market, the changes in demand structure are even clearer. According to several palm oil traders and analysts, due to ample domestic supply of rapeseed oil and soybean oil, which have a greater price advantage, China's palm oil import demand is expected to contract moderately further this year. This is a normal substitution consumption behavior based on market price mechanisms, reflecting the diversification and flexibility of edible oil sources in the Chinese market, and helping to ensure stable supply and price stability.
According to multiple well-known institutions and analysts, the current market consensus is that the temporary decline in inventories has provided short-term support, but is insufficient to drive a strong upward trend. One analyst pointed out, "January's inventory data was positive, but it was offset by weak spot exports and a sluggish external market. The market needs to see a rebound in February's export data, or stronger prices for competing edible oils, to establish a more solid upward trend." Another trader focusing on Asian markets added, "Market attention is shifting from January's 'past' to February and March's 'present.' The implementation of Indonesia's biodiesel policy, the pace of pre-Ramadan stockpiling, and the final soybean production in South America will be key variables to closely monitor going forward."
Looking ahead, the palm oil market is expected to enter a volatile phase characterized by intense competition between bullish and bearish factors. On one hand, the emergence of an inventory inflection point has limited the potential for a significant decline, and any better-than-expected export data or unfavorable weather in producing regions could act as a catalyst for a rebound. On the other hand, structural changes in Chinese demand, the potential ceiling for growth in India, and large inventories of competing edible oils constitute significant upward pressure on prices.
The key points to watch going forward will focus on the following aspects: First, whether Malaysia's export data for the entire month of February can reverse the downward trend of the first ten days of the month and verify the resilience of demand; second, the actual implementation of Indonesia's B35 biodiesel policy, which will directly determine its domestic consumption; and finally, the Chicago soybean oil market, as one of the pricing anchors, whose trends will continue to have a spillover effect on palm oil. Traders need to look for signs of a break in the balance among these dynamic factors. The market may consolidate around the current price level in the short term, awaiting clearer directional guidance.
Fundamentals: A key shift has occurred in inventory structure, but its sustainability remains questionable.
The MPOB's monthly report released on Tuesday was undoubtedly the focus of market attention this week. Data showed that as of the end of January 2026, Malaysian palm oil stocks fell sharply by 7.72% month-on-month to their lowest level in 11 months. This is the first decline after ten consecutive months of increases in the country's stocks, directly driven by strong export growth, with exports surging by more than 25% month-on-month, while production fell by 7.65% month-on-month due to seasonal factors, hitting a 10-month low. This inventory inflection point theoretically provides some price support for the market.
However, the strength of this bullish signal needs careful evaluation. Export data updated on the same day as the data release by independent inspection agency AmSpec Agri Malaysia showed that from February 1st to 10th, Malaysian palm oil product exports totaled only 399,995 tons, a sharp drop of 14.3% compared to 466,457 tons in the same period last month. This strongly suggests that the export surge in January may be unsustainable, and there are signs of a rapid cooling in demand in February. Whether the decline in inventory is the beginning of a trend reversal or just a flash in the pan remains to be seen and requires further verification from subsequent data. The market clearly has doubts about this, which is one of the core reasons why prices opened high but closed lower that day.
Competitive Landscape: Weak External Edible Oil Market and Structural Capacity Challenges
In addition to its own supply and demand data, pressure from related vegetable oil markets is also significant. On February 10th, Beijing time, the main soybean oil futures contract on the Dalian Commodity Exchange fell 0.3%, and the palm oil futures contract fell 0.69%. Meanwhile, soybean oil prices on the Chicago Board of Trade also fell 0.64%. As a crucial member of the global edible oil market, palm oil's price is highly correlated with substitutes such as soybean oil and rapeseed oil. Major consuming countries often switch between different oils based on cost-effectiveness in their purchasing strategies. The current general weakness of competing edible oils directly limits the potential for a rebound in palm oil prices.
From a longer-term supply structure perspective, capacity challenges remain. Industry data shows that the area of aging oil palm plantations in Malaysia is expected to increase from the current approximately 1.7 million hectares to 2 million hectares by 2027. This indicates that without large-scale replacement, the long-term yield potential of the world's second-largest producer will face pressure. In contrast, major producer Indonesia is actively providing financial support to smallholder farmers through channels such as the "Manor Crop Fund" to promote replanting programs. According to official sources this Tuesday, the fund has already disbursed approximately 10.89 trillion Indonesian rupiah, aiming to improve the planting efficiency and yields of smallholder farmers. The different paths taken by the two countries in maintaining and improving capacity will profoundly impact the global palm oil supply landscape in the medium to long term.
Demand outlook: Significant regional differentiation, growth faces structural constraints.
Demand on the demand side exhibits a clear regional differentiation. Analysts generally expect demand in the Indian market to rebound in 2026, as current prices have fallen significantly from previous highs, enhancing its purchasing appeal. However, this growth is not without its limitations. Some argue that competition from Chinese soybean oil will restrict the expansion of palm oil demand in the Indian market, and buyers will place greater emphasis on cost-effectiveness when making purchases.
In the Chinese market, the changes in demand structure are even clearer. According to several palm oil traders and analysts, due to ample domestic supply of rapeseed oil and soybean oil, which have a greater price advantage, China's palm oil import demand is expected to contract moderately further this year. This is a normal substitution consumption behavior based on market price mechanisms, reflecting the diversification and flexibility of edible oil sources in the Chinese market, and helping to ensure stable supply and price stability.
Institutional Views and Market Focus
According to multiple well-known institutions and analysts, the current market consensus is that the temporary decline in inventories has provided short-term support, but is insufficient to drive a strong upward trend. One analyst pointed out, "January's inventory data was positive, but it was offset by weak spot exports and a sluggish external market. The market needs to see a rebound in February's export data, or stronger prices for competing edible oils, to establish a more solid upward trend." Another trader focusing on Asian markets added, "Market attention is shifting from January's 'past' to February and March's 'present.' The implementation of Indonesia's biodiesel policy, the pace of pre-Ramadan stockpiling, and the final soybean production in South America will be key variables to closely monitor going forward."
Future Market Outlook and Key Considerations
Looking ahead, the palm oil market is expected to enter a volatile phase characterized by intense competition between bullish and bearish factors. On one hand, the emergence of an inventory inflection point has limited the potential for a significant decline, and any better-than-expected export data or unfavorable weather in producing regions could act as a catalyst for a rebound. On the other hand, structural changes in Chinese demand, the potential ceiling for growth in India, and large inventories of competing edible oils constitute significant upward pressure on prices.
The key points to watch going forward will focus on the following aspects: First, whether Malaysia's export data for the entire month of February can reverse the downward trend of the first ten days of the month and verify the resilience of demand; second, the actual implementation of Indonesia's B35 biodiesel policy, which will directly determine its domestic consumption; and finally, the Chicago soybean oil market, as one of the pricing anchors, whose trends will continue to have a spillover effect on palm oil. Traders need to look for signs of a break in the balance among these dynamic factors. The market may consolidate around the current price level in the short term, awaiting clearer directional guidance.
- 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.
