On Tuesday (March 10), palm oil futures on the Malaysian Derivatives Exchange (MDEX) faced significant selling pressure. The benchmark May contract closed down 139 ringgit, a 3.04% drop, at 4,428 ringgit per tonne. During the session, it briefly dipped to 4,370 ringgit, almost erasing the previous day's largest single-day gain in three years. Today's sharp decline was mainly dragged down by a synchronized drop in external markets. Competitive vegetable oil varieties on the Dalian Commodity Exchange and the Chicago Mercantile Exchange all declined, and international crude oil prices also fell sharply. A trader in Kuala Lumpur stated that the current market is closely following the performance of external vegetable oil markets and crude oil , demonstrating the passive nature of palm oil as one of the global edible oil pricing centers.

MPOB February inventory decline was less than expected; both production and exports fell.

Official data released today by the Malaysian Palm Oil Board (MPOB) shows that Malaysian palm oil stocks fell 3.9% month-on-month to 2.7 million tons at the end of February, the lowest level in four months. However, the market's interpretation of this report is complex. On the one hand, the absolute value of inventory did indeed decline; on the other hand, the decline did not exceed previous market expectations, and some traders believe that the data failed to provide sufficient bullish support. Specifically, crude palm oil production in February fell sharply by 18.6% from January to 1.28 million tons , consistent with seasonal production declines. During the same period, palm oil exports also fell sharply by 22.5% to 1.13 million tons. The contraction in both production and exports means that the actual change in inventory reflects a weak supply and demand situation rather than a destocking driven by strong demand. This seemingly neutral report failed to inject confidence into the market and, in fact, failed to act as a buffer when macroeconomic sentiment weakened.

Crude oil plunges 7%, reducing the appeal of biodiesel

External market pressure stemmed primarily from two dimensions: First, the across-the-board collapse of alternative oils. The most active soybean oil contract on the Dalian Commodity Exchange closed down 3.14%, while palm oil contracts also declined by 1.29%; the most active soybean oil contract on the Chicago Board of Trade recorded a 0.68% drop. As a direct competitor in the global vegetable oil market, palm oil prices have always been highly correlated with other oils, and any significant change in the soybean-palm oil price spread triggers expectations of a redistribution of market share. Second, the 7% plunge in crude oil futures today became the key factor that broke the camel's back. The previous trading day, oil prices had surged to a more than three-year high due to escalating geopolitical tensions; however, today, as market concerns about supply disruptions in the Middle East significantly eased, crude oil prices fell sharply. For palm oil, the decline in crude oil prices weakened its economic viability as a biodiesel feedstock, directly impacting market expectations for long-term demand for palm oil in the energy sector. This shift in sentiment driven by the logic of alternative energy sources is increasingly influencing the vegetable oil market in the current era of energy transition.

Exports in the first 10 months of March increased by nearly 40% month-on-month.

Despite weak futures trading, the spot market is showing positive signs, laying the groundwork for future price movements. Preliminary data released today by two major shipping surveyors shows that Malaysian palm oil exports in the first 10 days of March saw explosive growth compared to the same period last month. Independent surveyor AmSpec Agri Malaysia estimates an increase of 45.3%, while ITS statistics show a 37.9% increase. This strong rebound in exports in the first 10 days of March contrasts sharply with the weak export data in February . Pre-Ramadan stockpiling demand typically manifests in March, and the current export increase may be the beginning of this seasonal pattern. If this trend continues, it could further tighten supply from producing regions, given already low inventory levels, thus providing solid support for future prices. The current short-term market plunge is more of a reactive response to macroeconomic sentiment and external market dynamics; the bright spots in exports may be a key variable that bulls can look forward to in the future.

Frequently Asked Questions

Q: Why does a drop in crude oil prices directly affect palm oil prices?

A: Palm oil is not only an edible oil but also an important raw material for biodiesel production. When crude oil prices are high, biodiesel is more economical than traditional fossil fuels, which stimulates demand for palm oil in energy production, thus pushing up its price. Conversely, a 7% drop in crude oil prices, as seen recently, directly weakens the attractiveness of palm oil as a biodiesel feedstock. The market anticipates reduced demand for palm oil in the energy sector, leading to a sell-off. This "energy attribute" makes palm oil and crude oil prices strongly positively correlated, especially in a market environment with clear energy policy guidance.

Q: The MPOB report shows a decline in inventory, so why is the market reacting with a drop?

A: The market trades on the difference between expectations and reality, not on the absolute bullish or bearish impact of data. The MPOB data showed inventories falling to 2.7 million tons, indeed a four-month low, but this decline was largely within market expectations and failed to provide a surprise for bulls. A deeper reason lies in the "quality" of the inventory decline—the data showed a significant drop in both production and exports, meaning the inventory reduction was not due to strong demand, but rather to a contraction in supply. This destocking under a "weak supply and demand" environment cannot effectively boost market sentiment. When the external macroeconomic environment deteriorates, such neutral data is powerless to support prices and may instead be interpreted by the market as evidence of a bleak demand outlook.

Q: Export data for the first 10 days of March showed a nearly 40% increase compared to the previous month. Can this reverse the current downward trend?

A: The current sharp decline in the market is mainly driven by macroeconomic sentiment and external market factors (crude oil, soybean oil), representing systemic pressure. The strong export data in March is more of a fundamental positive, reflecting restocking demand from major buyers such as India ahead of Ramadan. This positive factor may not immediately offset the pessimistic sentiment at the macro level, and therefore may not immediately reverse the downward trend. However, it provides important bottom support for the market, meaning that the downside potential for prices in producing countries may be limited. If macroeconomic sentiment stabilizes subsequently, the continued improvement in export fundamentals will become the key force leading to a price rebound, which is a variable that traders need to closely monitor.

Q: Why can Dalian soybean oil and Chicago soybean oil affect the price of Malaysian palm oil?

A: Soybean oil and palm oil are each other's primary substitutes in the global vegetable oil market. When soybean oil prices rise, food processing companies and traders tend to purchase cheaper palm oil as a substitute, thus driving up palm oil demand and prices; conversely, the opposite is also true. The Dalian Commodity Exchange reflects the supply and demand in China, the largest importer of vegetable oils, while the Chicago Mercantile Exchange represents the pricing benchmark for soybean oil in North America and globally. As the largest exporter of palm oil, Malaysia's prices must maintain a certain price ratio with these two major markets; otherwise, arbitrage opportunities will arise. Therefore, fluctuations in soybean oil prices in either Dalian or Chicago will quickly be transmitted to the BMD crude palm oil futures market.

Q: How do you view the contradiction between the current "seasonal production decline" and "export recovery" in palm oil?

A: These two points are not contradictory; rather, they both depict the characteristics of different stages in the palm oil market. February's production plummeted by 18.6%, a typical characteristic of the "low production season," with output at its annual low. Meanwhile, exports surged 37.9% month-on-month in the first 10 days of March, indicating that demand was starting to pick up due to Ramadan stockpiling. Typically, from February to April, production is in the early stages of recovery but remains low, while demand begins to strengthen seasonally, leading to rapid depletion of inventories. Therefore, the current market is in a transitional window between "tightest supply" and "starting demand." This fundamental combination should have been extremely favorable for prices, but it has been temporarily masked by negative macroeconomic factors (the sharp drop in crude oil prices). Once macroeconomic sentiment calms down, this supply-demand imbalance will become the core driver of stronger palm oil prices.