On Friday (March 6), the benchmark May palm oil contract on the Malaysian Derivatives Exchange surged 158 ringgit to settle at 4,365 ringgit per tonne, a daily gain of 3.76%. The price touched its highest level in nearly four months during the session, demonstrating strong upward momentum. Looking at the weekly performance, the cumulative gain for the week reached 7.99%, marking the largest weekly increase since the week of November 25, 2024. This surge was accompanied by a significant increase in trading volume and a marked improvement in market participation, indicating that this breakout has received substantial financial support.



The key factors driving this round of price increases lie in the combined effect of strong external market performance and internal exchange rate factors. On Thursday night Beijing time, the collective strength of Chicago soybean oil, diesel, and crude oil futures laid a bullish foundation for the palm oil market. Entering Friday's Asian trading session, the strong rebound in Dalian palm oil and Zhengzhou rapeseed oil futures further ignited bullish enthusiasm, creating a positive pattern of coordinated domestic and international market movements. Meanwhile, the Malaysian ringgit weakened slightly by 0.05% against the US dollar, reducing procurement costs for foreign buyers to some extent and adding further support to the price increase.

Internal and external resonance leads to changes in supply and demand structure

The current strong performance of the palm oil market is not an isolated phenomenon, but rather a microcosm of the overall valuation restructuring of the global vegetable oil sector. From a price comparison perspective, palm oil has established a significant price advantage over major competitors such as soybean oil, rapeseed oil, and sunflower oil, placing it in a relatively undervalued position. Of particular note is the fact that palm oil and diesel prices have essentially reached parity. This change is significant given the ongoing implementation of mandatory biodiesel blending policies, directly enhancing the economic viability of palm oil as an energy feedstock.

Demand expectations are showing positive changes . Supply concerns stemming from the Middle East geopolitical situation are altering the purchasing strategies of some buyers, with the market generally anticipating potential restocking demand due to supply disruption risks in the near future. This expectation has already been partially reflected in the futures market, with forward contracts showing relative strength. Meanwhile, after previous depletion of inventory levels, major global importing countries have a rigid restocking demand, providing fundamental support for maintaining high prices.

Valuation advantages are highlighted from an institutional perspective

Anilkumar Bagani, head of commodities research at the renowned Sunvin Group, pointed out in his market analysis that the technical breakout in this round of gains stemmed from the combined effect of multiple factors. The strong performance of Chicago soybean oil, diesel, and crude oil futures in the early hours of Friday Beijing time, coupled with a robust rebound in Dalian futures during the Asian session, collectively contributed to the gap-up opening of palm oil futures on the Malaysian Derivatives Exchange.

From a valuation perspective, Bagani emphasizes that palm oil currently holds a significant price advantage in direct competition with soybean oil, rapeseed oil, and sunflower oil, and its unique price spread, nearly par with diesel, significantly enhances its attractiveness in the energy market. He specifically mentions that persistent market concerns about potential supply disruptions due to the situation in the Middle East provide additional support for improved demand expectations in the short term. This multi-dimensional valuation restructuring makes palm oil a more attractive investment in the global vegetable oil market.

The key to future market logic lies in the shift in variables.

From the current market structure perspective, this round of price increases has moved beyond a purely externally driven phase and is beginning to form a virtuous cycle of internal and external linkages. The strong performance of the Dalian Commodity Exchange is not merely a passive follow-up to overseas markets, but also reflects the true demand situation in the Chinese market. Against the backdrop of a steady recovery in the domestic economy, edible oil consumption has maintained steady growth, providing a solid foundation for import demand.

Looking ahead, market focus will gradually shift from purely supply-side factors to demand-side performance. On one hand, it's necessary to continuously monitor the actual purchasing pace of major consuming countries to verify whether current market expectations for improved demand can materialize. On the other hand, crude oil price movements will continue to influence the valuation of palm oil's energy attributes through the biodiesel pathway. Furthermore, fluctuations in the Malaysian Ringgit exchange rate will continue to affect dollar-denominated procurement costs, thus influencing short-term price volatility.

It is worth noting that while palm oil currently has a valuation advantage relative to other vegetable oils, the sustainability of this advantage depends on the evolution of the supply and demand dynamics of other oilseed varieties. Factors such as the progress of the South American soybean harvest, planting intentions for the new season's crops in North America, and the export schedule of Canadian rapeseed will all indirectly impact the palm oil market by affecting the prices of competing varieties.

Frequently Asked Questions

Question 1: What is the main driver of this round of palm oil price increases?

A: This round of price increases is the result of a confluence of factors. The direct driver comes from the strong performance of external markets, including the rise in Chicago soybean oil and crude oil futures, as well as the strong rebound in Dalian futures. A deeper reason lies in the valuation advantage of palm oil relative to other competing commodities, especially its price spread structure, which is on par with diesel prices, enhancing its attractiveness in the biodiesel sector. In addition, the slight weakening of the Malaysian ringgit also provided supplementary support for the price increase.

Question 2: How does palm oil currently demonstrate its price advantage compared to other vegetable oils?

A: This is mainly reflected on two levels. First, in terms of direct competition, palm oil prices are now lower than soybean oil, rapeseed oil, and sunflower oil, making it a price haven among major global vegetable oils, which is highly attractive to price-sensitive buyers. Second, in terms of energy attributes, palm oil prices are roughly equivalent to diesel prices. Considering the continued advancement of biodiesel blending policies in various countries, this price difference makes palm oil more economical in the energy sector.

Question 3: What specific impact will the situation in the Middle East have on the palm oil market?

A: The impact of the situation in the Middle East is mainly reflected in supply expectations. The region is a crucial global hub for vegetable oil trade, and geopolitical conflicts could disrupt normal transportation routes and logistics efficiency, raising concerns among some buyers about future supply. This anxiety will prompt importers to replenish their inventories or increase purchases in advance, creating precautionary demand and thus providing short-term support for prices.

Question 4: What variables should the market focus on in the future?

A: In the short term, we need to focus on the actual purchasing pace of major consuming countries to verify whether the expectation of improved demand can be realized; in the medium term, we should continue to track the trend of crude oil prices and influence the valuation of palm oil's energy attributes through the biodiesel path; in the long term, we need to pay attention to changes in the supply and demand pattern of other oilseed varieties, including the progress of South American soybean exports and North American planting intentions, which will indirectly affect the palm oil market through the price transmission of competing varieties.

Question 5: Can this round of price increases be sustained, and what are the risk factors?

A: The sustainability of the price increase depends on the convergence of multiple factors. Favorable factors include a clear valuation advantage, existing inventory replenishment demand, and a generally positive external market sentiment. Potential risks include: first, a correction in crude oil prices could weaken the energy attribute support for palm oil; second, improved supply of other vegetable oils could lead to a readjustment of price ratios; and third, an appreciation of the Malaysian Ringgit would increase procurement costs and suppress demand. It is recommended to pay attention to marginal changes in these variables.