Malaysian palm oil futures closed lower for the second consecutive trading day on Wednesday (March 18), falling by more than 1%. Market sentiment was dragged down by weaker competing edible oil and crude oil prices, while concerns about export demand in April further exacerbated the downward pressure on the market.

The benchmark June palm oil futures contract closed down 49 ringgit, or 1.07%, at 4,532 ringgit per tonne. Market participants are closely watching changes in fundamental factors for guidance on future price direction.

External market pressures cast a shadow over demand prospects.

Analysts from well-known institutions stated that the current selling pressure mainly stems from the interconnected effects of external markets. The weak performance of Chicago soybean oil and Dalian edible oil futures, coupled with the decline in crude oil prices, has collectively put downward pressure on palm oil prices . They specifically pointed out that the sharp rise in freight costs is one of the key factors leading to cooling demand, which has already triggered the accumulation of processed palm oil inventories, further undermining market confidence.

In the relevant vegetable oil market, the most active soybean oil contract on the Dalian Commodity Exchange fell 0.93%, while its palm oil contract fell even more sharply by 2.14%. Soybean oil prices on the Chicago Board of Trade also declined, falling 0.79%. As palm oil competes with other varieties in the global vegetable oil market, its price movements typically closely follow the fluctuations of competing edible oils.

Weaker crude oil prices and exchange rate fluctuations added negative factors.

Energy market developments also negatively impacted palm oil. The decline in international oil prices was primarily due to Iraq resuming crude oil exports via pipeline to Turkey's Ceyhan port, providing some relief to the market amid supply disruptions in the Gulf region. Weaker crude oil prices diminish the attractiveness of palm oil as a biodiesel feedstock , thus affecting its industrial demand.

At the same time, the Malaysian ringgit, the currency for palm oil trading, strengthened by 0.18% against the US dollar. This resulted in higher costs for overseas buyers purchasing palm oil in US dollar terms, which theoretically is detrimental to export demand and adds additional pressure to the market.

Industry perspective: Geopolitical conflicts and weak demand intertwine, exacerbating market uncertainty.

Despite short-term price pressures, industry veterans point out that the global edible oil market is exhibiting a high degree of unpredictability. On the one hand, energy supply disruptions caused by geopolitical conflicts in the Middle East have boosted market expectations for biodiesel demand, providing potential support for prices; however, on the other hand, weak purchasing intentions from major importing countries have cast a shadow over the price outlook. This interplay of forces has resulted in a lack of clear direction in the market in the short term, with traders struggling to assess the balance between supply risks and demand realities.

This indicates that the current market focus is shifting partly from potential supply-side disruptions to tangible concerns about high prices suppressing demand and rising logistics costs. While the long-term story of biodiesel demand remains intact, short-term negative factors from external markets and export prospects currently dominate.

In the coming period, traders need to closely monitor the purchasing pace of major importing countries, changes in freight rates, and production data from producing regions. These will be key indicators for determining whether palm oil prices can stabilize. Meanwhile, fluctuations in the crude oil market will continue to significantly impact expectations for palm oil-based biodiesel demand.



Question 1: Why does a drop in crude oil prices affect palm oil prices?
The correlation between crude oil prices and palm oil is primarily due to the use of palm oil in biodiesel production. When crude oil prices fall, the economic viability of biodiesel relative to traditional fossil fuels decreases, thereby reducing refineries' willingness and demand to use palm oil in biodiesel production. Therefore, weakness in the crude oil market typically spills over into the palm oil market, putting downward pressure on its prices.

Question 2: How do rising freight rates affect palm oil demand and prices?
Palm oil is one of the most traded vegetable oils globally, and transportation costs account for a significant portion of its final price. When international freight rates rise sharply, importers' procurement costs increase substantially. This dampens buyers' purchasing intentions, leading to a cooling of demand. Simultaneously, goods already in transit or stored may experience slower sales due to cost issues, resulting in inventory accumulation at ports or processing plants. Increased inventory pressure further negatively impacts prices.

Question 3: Why does the strengthening of the Malaysian Ringgit put downward pressure on palm oil prices?
Palm oil futures are primarily priced in the Malaysian Ringgit (MYR). For international buyers using the US dollar or other currencies, a stronger MYR means they will need to pay more in their own currency to purchase the same tonne of palm oil. This directly increases procurement costs, potentially dampening import demand. The expectation of reduced demand is reflected in futures prices, causing palm oil futures contracts denominated in the MYR to fall.

Question 4: What specific "competitive edible oils" are mentioned in the article, and how do they affect palm oil?
The article primarily mentions competing edible oils, including soybean oil traded on the Chicago Board of Trade and soybean and palm oil traded on the Dalian Commodity Exchange. These oils are substitutable in the global vegetable oil market. For example, when soybean oil prices fall, some buyers may reduce their purchases of palm oil and instead buy cheaper soybean oil. Therefore, the weakening prices of these competing edible oils directly lower the price of palm oil in order to maintain its market share globally.

Question 5: What is the main contradiction in the current market?
According to industry insiders, the current main contradiction in the market lies in the interplay between "geopolitically driven expectations of biodiesel demand" and "weak actual demand." On the one hand, tensions in the Middle East have raised concerns about energy supply, which theoretically benefits biodiesel demand and supports palm oil prices. On the other hand, high prices and rising logistics costs have resulted in insufficient purchasing power in major importing countries, leading to a less than optimistic demand fundamental. This tug-of-war between expectations and reality creates uncertainty and unpredictability in market trends.