On Thursday (April 2), the most active palm oil futures contract (June delivery) on the Malaysian Derivatives Exchange closed at 4,794 ringgit per tonne, up 25 ringgit, or 0.52%. The previous trading day's decline was absorbed by buying interest today, and market sentiment shifted towards cautiously bullish amid uncertainty surrounding geopolitical tensions and expectations of supply contraction.

Geopolitical factors act as a short-term swing hammer, and the prospects for negotiations influence sentiment.

Behind the market volatility, the trajectory of the Middle East situation has become the most uncertain variable . Paramalingam Supramaniam, director of Pelindung Bestari, a brokerage firm in Selangor, pointed out that conflicting signals from Washington and Tehran make it difficult for traders to determine whether the conflict is trending towards de-escalation or further escalation. This uncertainty directly translates into a safe-haven premium for palm oil—once the crude oil supply chain is disrupted, palm oil's appeal as a biodiesel feedstock will increase.

Today's performance in the crude oil market confirms this logic. Following the US statement that it would continue action against Iran, crude oil prices surged nearly 7% in a single day , reigniting concerns about supply disruptions. The strength in crude oil directly improved the economics of the biodiesel route, providing external support for palm oil as an alternative feedstock. At the same time, the Malaysian ringgit depreciated by 0.3% against the US dollar, further enhancing the attractiveness of palm oil to overseas buyers from a currency perspective.

Signs of a production inflection point are emerging, and month-end inventory forecasts are tightening.

On the fundamental front, the supply side is sending more noteworthy signals. Current production data shows only a slight increase in March output , far short of the expected seasonal recovery. Supramaniam forecasts that Malaysian palm oil stocks will fall between 2 million and 2.2 million tons at the end of March. This level provides significant support in the current demand environment—the production curve is gradually but steadily declining.

The market is awaiting the official supply and demand data for March from the Malaysian Palm Oil Board (MPOB), scheduled for release on April 10. Prior to this, traders will closely monitor production tracking and export forecasts from various agencies. If actual inventories fall to the lower end of the aforementioned range, it could further reinforce the current price structure.

Competitive vegetable oils show divergent trends, with Dalian soybean oil dragging down regional sentiment.

External vegetable oil markets showed mixed performance today. The most active soybean oil contract on the Dalian Commodity Exchange fell 0.48% , while palm oil contracts also closed down 0.28%, reflecting weak demand expectations in the Chinese market putting downward pressure on regional vegetable oil prices. In contrast, soybean oil on the Chicago Board of Trade recorded a 1.62% increase, showing a divergence between the US and Asian trading sessions.

As a price follower in the global vegetable oil trade system, palm oil maintains a high degree of price correlation with commodities such as soybean oil and sunflower oil . If the current weakness in the Dalian market continues, it will limit the upside potential of BMD palm oil to some extent. However, judging from today's market performance, the combined effect of geopolitical factors and tightening supply is sufficient to offset external price pressures.

With Indonesia's B50 policy about to be implemented, the increase in biodiesel demand is clear.

Changes in demand in the medium to long term should not be overlooked. The latest assessment by the Indonesian Palm Oil Association shows that after the full implementation of the B50 palm oil-based biodiesel program, the country's feedstock demand for biodiesel is expected to reach approximately 15 million tons in 2026 , an increase of 2 million tons compared to the previous year. This increase is equivalent to the annual output of a medium-sized production area, and its impact on Indonesia's domestic supply and demand balance will be structural.

It is worth noting that the B50 policy means Indonesia will further reduce its available palm oil exports. With production growth in major global producing regions reaching a bottleneck, the rigid expansion of domestic consumption in Indonesia will exacerbate the tight supply situation in the international market. This logic overlaps with current signals of weak short-term production.

In the short term, the trajectory of the Middle East situation will remain the core variable for near-term trading. If expectations of easing tensions rise, the current geopolitical premium in the market risks being given back; however, even if geopolitical factors subside, the combination of low March production and tight end-of-month inventories should still provide a floor for the market. The final confirmation of the MPOB data on April 10 will be a key point in verifying the current supply assessment.

Frequently Asked Questions

Question 1: Why does the situation in the Middle East affect palm oil prices?
There is a clear transmission mechanism between palm oil and crude oil through the biodiesel channel. Tensions in the Middle East pushing up crude oil prices enhance the economic viability of palm oil as a biodiesel feedstock, thereby stimulating demand. Furthermore, geopolitical uncertainty itself can prompt some funds to seek alternative assets, and palm oil futures, as a highly liquid commodity contract, are easily influenced by such sentiment premiums.

Question 2: What signals did Malaysia's March production data send?
March is typically a transitional month for palm oil production, moving from a low-production period to a high-production period. However, current data shows only a slight increase, far below the normal seasonal recovery. This suggests that producing regions may face constraints related to labor, tree age structure, or weather. If this trend continues in April, it will put downward pressure on the annual supply.

Question 3: What does a month-end inventory level of 2 million to 2.2 million tons mean?
This inventory range is considered neutral to tight. For comparison, inventories in the same period of 2025 were estimated at 2.3 million to 2.5 million tons. Lower inventories compared to the same period last year, coupled with stable demand, constitute the fundamental conditions for price increases. If the actual MPOB figure falls around 2 million tons, it could trigger a reassessment of supply tightness in the market.

Question 4: Why is the decline in soybean oil prices in Dalian worth noting?
Dalian soybean oil reflects the import crushing margins and end-consumer situation in the Chinese market. China is the world's largest importer of vegetable oils, and changes in its demand directly affect international palm oil trade flows and prices. The continued weakness in the Dalian market suggests that Chinese buyers' purchasing intentions may decline, or they may turn to cheaper alternative oils, which puts implicit pressure on BMD palm oil.

Question 5: How much impact does Indonesia's B50 policy have on the international palm oil market?
Indonesia is the world's largest producer and exporter of palm oil. The B50 policy means that approximately 15 million tons of palm oil will be used annually for domestic biodiesel production, an increase of 2 million tons from the previous year. This 2 million ton increase is almost equivalent to Malaysia's monthly exports. With domestic consumption continuously squeezing export supply, international buyers will face a tighter supply environment, exerting a long-term upward pressure on prices.