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0303 Settlement Market Data and Review

Malaysian palm oil futures failed to maintain their three-day winning streak on Wednesday (March 4), closing slightly lower. At midday settlement, the benchmark May contract on the Bursa Malaysia Derivatives Exchange closed at 4178 ringgit per tonne, down 8 ringgit for the day, a decrease of 0.19%. Yesterday's market saw narrow-range fluctuations, primarily constrained by the weakness in Chicago soybean oil futures and profit-taking by some long positions after recent price increases.

Looking at the intraday trading range, the price reached a high near the 4300 ringgit/ton level before encountering resistance and falling back, indicating that the upward momentum in the short term has weakened. A trader in Kuala Lumpur said after the close, "Today, crude palm oil futures mainly followed the weakness in Dalian and Chicago soybean oil, resulting in profit-taking . Considering the current support of international crude oil prices, it is expected that the price will mainly fluctuate within the range of 4150-4300 ringgit/ton in the near term." This view basically reflects the current market consensus on the short-term trend.

New changes in supply and demand fundamentals

On the supply and demand front, the latest survey data provides new trading clues for the market. A survey of plantations and traders by a well-known institution indicates that Malaysian palm oil stocks at the end of February are highly likely to decline for the second consecutive month, reaching their lowest level in four months. This expectation is mainly based on seasonal factors leading to a decline in production, the impact of which outweighs the negative effect of slower exports during the same period. Typically, in the first quarter of each year, major palm oil producing countries enter their traditional low-production season, with continuous rainfall and labor efficiency issues significantly constraining bunch harvesting.

Meanwhile, positive signals also emerged from the demand side. According to data provided by five distributors, India's palm oil imports in February surged 10.1% month-on-month, reaching a six-month high. The core driver of this growth is the widening price gap between palm oil and sunflower and soybean oil, highlighting its price discount advantage and attracting Indian refiners to increase their purchases, thus reducing their reliance on sunflower oil imports. As the world's largest buyer of vegetable oils, India's restocking activity provides solid demand support for the current market and, to some extent, offsets concerns that high prices might suppress consumption.

Key viewpoints from mainstream institutions

Regarding the logic behind future market developments, market participants from different backgrounds offered their own interpretations. The core view of the aforementioned Kuala Lumpur trader is that the current market movement is mainly driven by the price ratios of competing edible oils , with particular attention paid to the guiding role of Chicago soybean oil. After profit-taking, whether the price center can stabilize will depend on the degree of cooperation from crude oil prices.

From a fundamental research perspective, the conclusion reached by well-known institutions through surveys that "inventory has fallen to a four-month low" is regarded by most analysts as a cornerstone supporting prices in the medium term. Some industry analysts further point out that the final confirmation of February production data will determine the market sentiment in early March. If the final data meets or falls short of survey expectations, then the current price pullback may only be a brief pause in the upward trend.

Furthermore, Singaporean traders noted in their market review that although there were signs of overbought conditions in the short term, the basis in the spot market remained firm, indicating that upstream suppliers were not under significant selling pressure. This suggests that industrial capital is relatively optimistic about the current supply and demand dynamics and is not in a hurry to conduct large-scale hedging operations in the futures market.

External related market transmission effect

Wednesday's performance in related markets exhibited some complexity. Firstly, on the Dalian Commodity Exchange, the most actively traded soybean oil contract closed up 0.46%, while the palm oil contract rose slightly by 0.22%. Both contracts experienced significant intraday volatility, with the morning session seeing declines of nearly 0.5%. This suggests that while bullish sentiment in the domestic edible oil market has not completely dissipated, divergences are widening.

In contrast, CBOT soybean oil futures traded weakly in electronic trading, falling 0.27%, directly putting price pressure on the Malaysian market. As soybean oil is one of the global benchmarks for edible oil pricing, its weakness will limit the upside potential for palm oil.

It's worth noting that the crude oil market experienced significant volatility today, surging as much as 3% intraday. Geopolitical factors have led to expectations of supply disruptions in the Middle East, directly boosting the biodiesel sector. The market logic is that rising crude oil prices will improve the economic viability of palm oil as a biodiesel feedstock, thereby stimulating industrial demand. Although palm oil did not follow crude oil's upward trend today, instead falling due to being dragged down by soybean oil, such divergence is usually unsustainable in the long term. In the coming trading days, if crude oil prices can maintain their high levels, they may provide additional upward momentum for palm oil from the biodiesel demand side. This is the underlying reason why traders consider crude oil an important reference variable for short-term trading ranges.

Frequently Asked Questions

Q: Does today's decline in palm oil prices mean that this round of rebound has ended?

A: Today's slight pullback is more of a technical adjustment than a trend reversal. From a driving factor perspective, it's mainly due to profit-taking coupled with the weakening sentiment reflected in Chicago soybean oil prices. However, on the fundamental side, the two core bullish factors—Malaysian inventories falling to a four-month low and Indian imports surging—remain unchanged. Therefore, as long as international oil prices remain relatively high, the current consolidation is more likely a build-up of momentum for the next upward move.

Q: What does the increase in Indian imports mean for the market?

A: Indian import data is an important indicator of physical demand in Asia. February imports surged 10% month-on-month, reaching a six-month high, indicating that buyers still accept current price levels after the previous price increases, especially given the significant discount palm oil offers compared to soybean and sunflower oil. This helps alleviate inventory pressure in major producing countries, providing support for prices in those regions and thus solidifying the bottom range for futures prices.

Q: Why should traders focus on the 4150-4300 ringgit range?

A: This range reflects the current balance of power between bulls and bears in the market. The lower limit, around 4150 ringgit, is a pullback confirmation area after the previous platform breakout, and it echoes the support logic of crude oil prices; the upper limit, around 4300 ringgit, is the recent rebound high, where there is technical selling pressure. Traders believe that without new major news catalysts, prices will fluctuate within this range, seeking a new directional breakout.

Q: Why did the rise in crude oil prices fail to drive a corresponding increase in palm oil prices today?

A: This is a typical short-term market pricing discrepancy. Crude oil prices are primarily transmitted to palm oil through biodiesel demand, which is a medium- to long-term logic. However, in intraday trading, the market often reacts first to the most direct factor, namely the decline in CBOT soybean oil. However, this divergence is often unsustainable. If geopolitical risks lead to a sustained rise in crude oil prices, its cost-push effect will eventually be transmitted to the vegetable oil market through biodiesel blending profits. At that point, palm oil will likely catch up to correct this deviation.

Q: What key variables should we pay attention to in the coming week?

A: First, pay close attention to the release of official data from the MPOB (Malaysian Palm Oil Board) for February to verify whether inventories have fallen to low levels as indicated by the survey. Second, observe the impact of Malaysian Ringgit (MYR) exchange rate fluctuations against the US Dollar on MYR-denominated contracts. Finally, closely monitor the sustainability of international crude oil prices and the trend of Chicago soybean oil, as these two factors will determine whether palm oil can break out of its current trading range and resume its upward trend.