Table of Contents

Palm oil continued its rebound with three consecutive days of gains, supported by downward revisions to inventory expectations.

The supply and demand landscape is shifting: declining production coexists with a rebound in import demand.

Enhanced transmission effects from external markets provide support for oil price geopolitical risks.

Market Outlook and Key Focus

On Tuesday (March 3), crude palm oil futures on the Bursa Malaysia Derivatives Exchange rose for the third consecutive trading day. At the close, the benchmark May contract settled at 4,186 ringgit per tonne, up 39 ringgit from the previous trading day, a gain of 0.94%, marking the highest closing price in nearly four weeks.

From a technical perspective, palm oil futures prices generally trended upwards today. The market opened strongly, driven by the performance of related edible oil commodities, leading to a significant improvement in market sentiment. A trader from Kuala Lumpur told a well-known institution, "Malaysian crude palm oil futures opened higher today, mainly due to the strength of competing oil prices." The trader further added that the escalating military actions between Israel and the United States, and the ongoing geopolitical tensions surrounding Iran, provided support for the entire energy sector, which in turn impacted the edible oil market.

From a technical perspective, analysts from well-known institutions point out that palm oil futures may currently be testing the support level of 4121 ringgit per ton. If this level is broken, it could further decline to the range of 4078 to 4098 ringgit. However, judging from today's strong performance, market buying sentiment remains relatively strong in the short term.

The supply and demand landscape is shifting: declining production coexists with a rebound in import demand.

Today's strong market performance is supported by multiple fundamental factors. The most crucial of these is the change in Malaysian palm oil inventory expectations. According to a survey released today by a well-known institution, Malaysian palm oil inventories are expected to decline for the second consecutive month in February, reaching a four-month low. The core logic behind this forecast is that the seasonal decline in production has outweighed the impact of the slowdown in exports.

On the demand side, major consumer markets are showing new developments. Data shows that India's palm oil imports in February increased by 10.1% month-on-month, reaching the highest level in six months. The driving factor behind this significant increase is the widening price gap between palm oil and competing oils, making palm oil's price advantage more prominent. Five traders interviewed stated that this price advantage has prompted Indian refineries to increase their palm oil purchases while correspondingly reducing sunflower oil imports. This indicates that palm oil is regaining market share in the price-sensitive Indian market.

However, Malaysia's export data this month doesn't present a entirely optimistic picture. According to data released by testing agencies Intertek Testing Services and Amspec Agri Malaysia, Malaysian palm oil exports in February fell by 21.5% to 25.5% month-on-month. This data reflects, to some extent, the divergence in global demand.

The enhanced transmission effect of external markets provides support for the geopolitical risks of crude oil.

The strong performance of the palm oil market today is closely related to the interconnected effects of external markets. On the Dalian Commodity Exchange in China, the main soybean oil contract rose 1.16%, and the palm oil contract rose 1.6%. Soybean oil prices on the Chicago Board of Trade also performed strongly, rising 1.34%. As an important part of the global vegetable oil market, palm oil prices are highly correlated with competing oil products, and today's rise was clearly driven by the performance of these markets.

More importantly, the strong performance of the crude oil market has provided strong support for palm oil. Brent crude futures prices climbed to their highest level since July 2024 today. The main driver of this rise is geopolitical risks in the Middle East – escalating conflict between the US and Israel and Iran, coupled with concerns about shipping safety in the Strait of Hormuz, has exacerbated market anxieties about supply disruptions in key oil-producing regions.

The rise in crude oil prices is particularly significant for palm oil. Stronger crude oil prices enhance palm oil's appeal as a feedstock for biodiesel. Against the backdrop of global efforts to promote renewable energy, the demand for biodiesel feedstocks has become a crucial factor influencing the vegetable oil market. Higher crude oil prices mean improved economics for biodiesel, which could potentially lead to upward revisions in demand expectations for palm oil.

Market Outlook and Key Focus

Considering all current market factors, the palm oil market is in a phase of mixed bullish and bearish factors. On the one hand, expectations of declining Malaysian inventories, a rebound in Indian purchasing demand, and a strong crude oil market are providing support for prices; on the other hand, slowing Malaysian export data is limiting the upside potential to some extent.

In the near future, the market needs to pay attention to several key variables: First, the official inventory data to be released by the Malaysian Palm Oil Board, whether it can verify the current market expectation of declining inventories; second, the purchasing pace of major consuming countries, especially whether India can maintain its current import levels after completing a round of restocking; and third, the trend of the crude oil market, especially whether the geopolitical situation in the Middle East will escalate further.

From a longer-term perspective, palm oil prices will continue to be closely linked to competing oil products and will also remain influenced by biodiesel policy guidance. Against the backdrop of a gradual adjustment in the global oilseed and edible oil supply landscape, the dynamic balance between supply and demand will be a key factor determining the price center.

Frequently Asked Questions

Q: What are the main reasons for the expected decline in Malaysian palm oil inventories? What impact will this have on prices?

A: According to a survey by a well-known institution, Malaysian palm oil stocks are expected to decline for the second consecutive month in February, mainly due to seasonal factors causing a production drop that outweighs the impact of slower exports. This expectation of declining stocks typically supports price increases, as it signifies tighter market supply. Today's palm oil price hit a near four-week high, largely reflecting the market's positive reaction to this expectation of declining stocks. However, it's important to note that the release of actual stock data may introduce new market volatility.

Q: Why did India's palm oil imports increase significantly in February?

A: India's palm oil imports rose 10.1% month-on-month in February, reaching a six-month high, primarily driven by the widening price gap between palm oil and competing oils such as sunflower oil. According to five traders, this price advantage makes palm oil more attractive in the Indian market, prompting local refineries to increase palm oil purchases while correspondingly reducing sunflower oil imports. This reflects India's high price sensitivity in its purchasing decisions as the world's largest importer of vegetable oils, providing significant support for Malaysian palm oil exports.

Q: How does the geopolitical situation in the Middle East affect current palm oil prices?

A: Geopolitical tensions in the Middle East primarily affect the palm oil market indirectly through their impact on crude oil prices. Today, Brent crude futures prices rose to their highest level since July 2024, mainly due to the escalating conflict between the US and Israel and Iran, as well as concerns about shipping safety in the Strait of Hormuz. Rising crude oil prices enhance the economic viability of palm oil as a biodiesel feedstock, thereby strengthening the biodiesel industry's demand expectations for palm oil. This energy market transmission effect plays an increasingly important role in the current price formation mechanism.

Q: Is there a discrepancy between the February export data for Malaysian palm oil and the growth in Indian imports?

A: These two data points reflect market dynamics at different levels. Malaysian exports fell 21.5% to 25.5% month-on-month, indicating an overall slowdown in exports, which may be related to the purchasing pace of major importing countries such as China and the EU. Meanwhile, India's import growth indicates strong demand in that market, but India is only one of the buyers of Malaysian palm oil. Furthermore, import data is also affected by factors such as shipping time lags and inventory cycles. Overall, these two data points reflect the divergent trends in global palm oil demand, with the strong performance of the Indian market partially offsetting the impact of slower demand in other regions.

Q: What are the key factors to watch in the palm oil market in the near future?

A: The market needs to focus on the following aspects in the future: First, the official inventory data to be released by the Malaysian Palm Oil Board to verify whether the market's expectations for a decline in inventory are accurate; second, whether India can maintain a high level of imports after completing this round of restocking; third, the trend of the crude oil market, especially the evolution of the geopolitical situation in the Middle East; fourth, the price changes of competing oils such as soybean oil and sunflower oil, whose price difference with palm oil will affect the distribution of market share; and fifth, the dynamics of biodiesel policies in major consuming countries, which are related to the prospects for industrial demand for palm oil.