Malaysian palm oil futures on the Bursa Malaysia Derivatives Exchange (BMD) faced significant selling pressure on the first trading day after the Eid al-Fitr holiday (March 24). By the close of trading, the benchmark June contract FCPOc3 had fallen sharply by 72 ringgit, a drop of 1.56%, to settle at 4,539 ringgit per tonne. While stronger crude oil prices and a weaker ringgit typically provide support, the current market focus was clearly dominated by weakness in the external vegetable oil market and geopolitical uncertainties, preventing prices from continuing their pre-holiday trend.

External vegetable oil markets exerted pressure, leading to a technical correction in futures prices.

On the first trading day after the holiday, the palm oil market failed to break away from its own trend, instead closely following the weak performance of major global vegetable oil markets. Looking at the charts, the significant decline in related commodities on the Dalian Commodity Exchange (DCE) was the direct cause of the pressure on BMD crude palm oil futures. Data shows that the most active soybean oil contract on the DCE fell 0.97% that day, while the palm oil contract saw an even more significant drop of 1.79%. Meanwhile, soybean oil futures prices on the Chicago Board of Trade (CBOT) also recorded a 0.55% decline.

A trader in Kuala Lumpur analyzed after the market closed that the recent relatively narrow trading range of palm oil futures prices was mainly due to its price movement being "hijacked" by the price fluctuations of soybean oil in Dalian and Chicago. This correlation reflects the high degree of integration in the global vegetable oil market—as the largest market share commodity, palm oil prices always need to maintain a relative balance with substitutes such as soybean oil and sunflower oil. Price changes in any one of these markets are quickly transmitted to other markets through import/export trade and arbitrage activities. Currently, the collective weakness in external vegetable oil markets has directly eroded the price advantage of palm oil, triggering a technical correction in the market.

Geopolitical risks exacerbate market wait-and-see sentiment

Besides fundamental supply and demand factors, geopolitical tensions at the macro level have become a key variable suppressing market sentiment. Market participants generally exhibited caution after the market opened, with relatively low trading volume, indicating a strong wait-and-see attitude.

This risk-averse mentality is closely related to the latest developments in the Middle East. Despite external reports of "productive dialogue" between the US and Iran, Iran immediately denied any negotiations had taken place. These contradictory statements have exacerbated market uncertainty regarding the future of the situation. For the global commodities market, the Middle East situation not only directly affects crude oil price fluctuations but also indirectly impacts the vegetable oil market through supply chain risks and changes in risk appetite. Traders generally believe that until geopolitical risks become clearer, funds tend to reduce positions or maintain low levels of activity, awaiting clearer signals.

It's worth noting that while geopolitical risks have triggered risk aversion, the same factor has also been transmitted to the biodiesel demand side through crude oil prices . Currently, crude oil prices continue to strengthen due to supply concerns, which, theoretically, should enhance the attractiveness of palm oil as a biodiesel feedstock. However, this potential long-term positive has failed to offset the current short-term pessimism in the market, indicating that traders are currently more focused on the risk of shrinking demand than on the substitution logic of costs.

Signs of weakening demand emerge, prompting a shift in India's procurement strategy.

From the demand side, news from major importing countries has further exacerbated market concerns. Industry sources revealed that Indian vegetable oil refiners are proactively reducing their purchases of palm oil, soybean oil, and sunflower oil. The logic behind this behavior warrants further investigation: refiners are betting that the current price increases driven by geopolitical risks are unsustainable, and therefore choose to replenish their inventories only after the conflict ends.

This shift in procurement strategy has a significant impact on the palm oil market. As the world's largest importer of vegetable oils, India's changes in procurement pace often directly affect the export sales progress of producing countries. Currently, Indian buyers' delayed purchases mean that inventory pressure in producing countries may increase in the short term, putting downward pressure on prices. From a trading psychology perspective, this behavior pattern reflects that market participants have a low acceptance of the current price level, believing that the risk premium is too high and there is room for a decline.

However, hedging factors also exist in the market. The ringgit weakened by 0.43% against the US dollar that day, providing some buffer for palm oil prices. For international buyers holding US dollars, the ringgit's depreciation means a lower actual purchase cost of palm oil denominated in local currency, which is beneficial in stimulating potential export demand. However, judging from the current price trend, the positive monetary policy has failed to offset the dual pressures from demand concerns and weak external markets, indicating that bearish sentiment is temporarily in control.

Summary and Outlook

In summary, the palm oil market is currently in a phase of tug-of-war between bullish and bearish factors. On the supply side, seasonal production cuts and promising biodiesel demand provide medium- to long-term support. However, in the short term, weak performance in the external vegetable oil market, risk aversion stemming from geopolitical uncertainties, and shifts in the purchasing strategies of major importer India are all contributing to downward pressure on prices. In the coming week, traders need to closely monitor further developments in the Middle East, actual purchasing actions by Indian refiners, and price trends in the Dalian and Chicago vegetable oil markets. These factors will collectively determine whether palm oil futures can regain a foothold at the upper limit of the current trading range.

## FAQ

Question 1: Why did palm oil prices fall despite rising crude oil prices and a depreciating ringgit?
A: While rising crude oil prices benefit biodiesel demand and a depreciating ringgit boost exports, these positive factors are offset by more direct short-term pressures in the current market environment. On one hand, the external vegetable oil market (Dalian soybean oil, Chicago soybean oil) is collectively weakening, putting palm oil, as a substitute, under price pressure. On the other hand, geopolitical uncertainties in the Middle East are triggering risk aversion in the market, leading investors to reduce their positions and adopt a wait-and-see approach. Furthermore, Indian buyers are proactively reducing their purchases, directly impacting short-term demand expectations.

Question 2: What is the core logic behind Indian refiners reducing their purchases?
A: Indian refiners believe the current geopolitically driven price surge is unsustainable and anticipate prices will fall after the Middle East conflict ends. Therefore, these companies are reducing purchases during the conflict, waiting for the situation to clarify or prices to correct before replenishing their inventories. This is a typical "buy the dip" strategy and reflects the market's cautious attitude towards current price levels.

Question 3: How do geopolitical risks simultaneously affect both the bullish and bearish factors for palm oil?
A: Geopolitical risks have a dual transmission path to palm oil. On the bullish side, tensions in the Middle East push up crude oil prices, enhancing the economic viability of palm oil as a biodiesel feedstock. On the bearish side, uncertainty leads to increased risk aversion, with traders tending to reduce risk exposure and decrease positions. Simultaneously, the complexity of the situation (such as differing statements from the US and Iran) makes it difficult for the market to form a consensus, further suppressing trading activity.

Question 4: Why are palm oil prices so closely linked to those of Dalian soybean oil and Chicago soybean oil?
A: Palm oil, soybean oil, and sunflower oil are substitutes for each other in the global vegetable oil market, and consumers can flexibly adjust their purchasing ratios based on price differences. Therefore, price changes in any major commodity will quickly be transmitted to other commodities through trade flows and arbitrage activities. Dalian soybean oil reflects demand in the Chinese market, while Chicago soybean oil reflects pricing in the Americas market; both are important references in the global vegetable oil pricing system, and palm oil prices naturally fluctuate accordingly.

Question 5: What key variables should we pay attention to in the future palm oil market?
A: Traders should focus on three key areas: first, the actual evolution of the situation in the Middle East, especially its continued impact on crude oil prices; second, changes in the purchasing pace of major importing countries such as India, to verify whether demand has truly contracted; and third, price trends in the Dalian and Chicago vegetable oil markets to determine whether external pressures have eased. In addition, production and export data from Malaysia and Indonesia will also provide important guidance for the fundamentals.