How far can the logic of focusing on crude oil to trade Malaysian palm oil go?
2026-04-16 18:33:53
Malaysian palm oil futures closed flat on Thursday (April 16). While volatility in the Middle East has injected uncertainty into the energy market, the palm oil market is currently facing a tug-of-war between bullish and bearish fundamentals: on the one hand, demand from major importing countries is slowing, and on the other hand, expectations of a production rebound are drawing ever closer.
By the close of trading that day, the most active July palm oil futures contract on the Bursa Malaysia Derivatives Exchange (BMD) fell slightly by 2 ringgit, or 0.04%, to settle at 4,495 ringgit per tonne. Despite the minimal decline, the lack of significant intraday volatility reflected a cautious wait-and-see attitude among traders.
The most direct pressure currently facing the palm oil market comes from the rapid contraction in demand. According to shipping survey data from a well-known institution, from April 1st to 15th, Malaysian palm oil exports fell sharply by 34.2% to 34.7% compared to the previous period. This significant decline confirms previous market concerns that high prices were suppressing demand.
Paramalingam Supramaniam, a renowned analyst and director at Pelindung Bestari, points out that India and China, the world's two largest palm oil importers, are currently showing weak purchasing intentions. This is particularly true in China, where ample domestic reserves of alternative oils have significantly slowed the pace of palm oil restocking. This demand vacuum coincides with Malaysia entering its second-quarter seasonal production surge.
With improved production efficiency and normalized harvesting operations, the market generally expects output to steadily increase in the coming months. Supramaniam warns that weak demand coupled with increased supply could very likely lead to a resurgence in Malaysian palm oil ending stocks. Under the anticipated logic of "increased supply and decreased demand," the upside potential for prices is severely limited.
Besides the shift in fundamental supply and demand, exchange rate fluctuations have also become a significant factor constraining Malaysian palm oil prices. The Malaysian ringgit has been relatively stable recently, appreciating by 0.20% since Monday. As the currency used to price palm oil, a stronger ringgit means higher procurement costs for buyers holding foreign currency, which is undoubtedly a further blow to already weak demand.
Meanwhile, volatility in the energy market provided some downside support for palm oil. Crude oil prices rebounded today as the market reviewed progress in negotiations to ease regional conflicts and restore energy supplies. Stronger crude oil typically increases the attractiveness of palm oil as a biodiesel feedstock, thus offsetting some of the bearish sentiment stemming from weak demand.
This cross-commodity linkage effect is also reflected in related markets. At today's close in Beijing time, the DCE soybean oil futures contract rose 0.57%, and the DCE palm oil futures contract rose 0.32%. Meanwhile, soybean oil prices on the Chicago Board of Trade (CBOT) also rose 0.82%. As an important component of the global vegetable oil system, palm oil's price path is still largely anchored by the trends of soybean oil and crude oil.
In summary, the palm oil market is at a critical turning point. The "low inventory" logic that previously supported prices is gradually weakening due to the arrival of the production increase cycle, while "weak demand" has become the dominant factor restricting the market.
For professional traders, the key focus over the next two weeks should be whether the actual increase in Malaysian palm oil production will exceed the historical average, and whether India's pre-Diwali restocking demand will start ahead of schedule. Given the current mixed bullish and bearish factors, the market is expected to remain range-bound between 4400 and 4600 ringgit in the short term. Although unexpected events in the energy market may trigger impulsive price increases, the momentum for a unilateral breakout remains insufficient until the inventory inflection point is confirmed.
Q: Why has the price of Malaysian palm oil remained stable despite a significant drop in export data?
A: This is mainly due to the supporting effect of the energy market and the linkage effect of related oil products. Although exports fell by about 34% month-on-month in the first half of April, crude oil prices rebounded during the same period due to the situation, enhancing the potential value of palm oil as a biofuel. In addition, the strength of the Dalian Commodity Exchange and US soybean oil also drove safe-haven buying, offsetting some of the negative fundamental factors.
Q: How do fluctuations in the Malaysian Ringgit exchange rate specifically affect the procurement costs of Chinese importers?
A: Palm oil is traded globally in Malaysian Ringgit (MYR) and settled in US dollars. When the MYR strengthens against the US dollar, even if the price of Malaysian palm oil futures remains unchanged, the price converted to US dollars will rise. For Chinese importers, this means they need to pay more foreign exchange to purchase the same weight of the product, thus limiting import arbitrage opportunities and leading to a further contraction in import demand in the short term.
Q: Is there any seasonal basis for the analyst's claim of "second-quarter production rebound"?
A: Yes. Malaysian palm oil production exhibits a clear seasonal pattern. Typically, production is at its lowest point in the first quarter due to the rainy season and labor holidays. From April onwards, as the weather improves and the oil palm trees enter their peak fruiting period, production increases month by month until October. Current market trading is based on this expectation of increased production, leading to price adjustments.
Q: What factors are currently driving the weak demand in China and India?
A: In the Chinese market, the main reason is the relatively abundant supply of alternative vegetable oils such as soybean oil, making palm oil's price-performance advantage less significant compared to other oils. In the Indian market, previous high prices suppressed some consumer demand, and with current domestic inventory levels at reasonable levels, buyers are waiting for a price correction after production increases, thus shifting their purchasing pace towards "essential needs."
Q: Why do changes in crude oil prices directly affect palm oil prices?
A: Palm oil is one of the main raw materials for biodiesel. When crude oil prices rise, the economics of biofuels improve, which incentivizes countries like Indonesia and Malaysia to increase the blending of their domestic biodiesel, thereby reducing the amount available for export and tightening supply at the margin. Conversely, if crude oil prices fall, palm oil loses the support of industrial demand, and its price logic will revert to pricing based on food consumption.
By the close of trading that day, the most active July palm oil futures contract on the Bursa Malaysia Derivatives Exchange (BMD) fell slightly by 2 ringgit, or 0.04%, to settle at 4,495 ringgit per tonne. Despite the minimal decline, the lack of significant intraday volatility reflected a cautious wait-and-see attitude among traders.
Fundamental pressures: precipitous decline in exports and the start of a production expansion cycle
The most direct pressure currently facing the palm oil market comes from the rapid contraction in demand. According to shipping survey data from a well-known institution, from April 1st to 15th, Malaysian palm oil exports fell sharply by 34.2% to 34.7% compared to the previous period. This significant decline confirms previous market concerns that high prices were suppressing demand.
Paramalingam Supramaniam, a renowned analyst and director at Pelindung Bestari, points out that India and China, the world's two largest palm oil importers, are currently showing weak purchasing intentions. This is particularly true in China, where ample domestic reserves of alternative oils have significantly slowed the pace of palm oil restocking. This demand vacuum coincides with Malaysia entering its second-quarter seasonal production surge.
With improved production efficiency and normalized harvesting operations, the market generally expects output to steadily increase in the coming months. Supramaniam warns that weak demand coupled with increased supply could very likely lead to a resurgence in Malaysian palm oil ending stocks. Under the anticipated logic of "increased supply and decreased demand," the upside potential for prices is severely limited.
Finance and Macro: The Ringgit's Strength and the Safe-Haven Premium in the Energy Market
Besides the shift in fundamental supply and demand, exchange rate fluctuations have also become a significant factor constraining Malaysian palm oil prices. The Malaysian ringgit has been relatively stable recently, appreciating by 0.20% since Monday. As the currency used to price palm oil, a stronger ringgit means higher procurement costs for buyers holding foreign currency, which is undoubtedly a further blow to already weak demand.
Meanwhile, volatility in the energy market provided some downside support for palm oil. Crude oil prices rebounded today as the market reviewed progress in negotiations to ease regional conflicts and restore energy supplies. Stronger crude oil typically increases the attractiveness of palm oil as a biodiesel feedstock, thus offsetting some of the bearish sentiment stemming from weak demand.
This cross-commodity linkage effect is also reflected in related markets. At today's close in Beijing time, the DCE soybean oil futures contract rose 0.57%, and the DCE palm oil futures contract rose 0.32%. Meanwhile, soybean oil prices on the Chicago Board of Trade (CBOT) also rose 0.82%. As an important component of the global vegetable oil system, palm oil's price path is still largely anchored by the trends of soybean oil and crude oil.
Future guidance: The focus of trading is shifting from the supply side to inventory management.
In summary, the palm oil market is at a critical turning point. The "low inventory" logic that previously supported prices is gradually weakening due to the arrival of the production increase cycle, while "weak demand" has become the dominant factor restricting the market.
For professional traders, the key focus over the next two weeks should be whether the actual increase in Malaysian palm oil production will exceed the historical average, and whether India's pre-Diwali restocking demand will start ahead of schedule. Given the current mixed bullish and bearish factors, the market is expected to remain range-bound between 4400 and 4600 ringgit in the short term. Although unexpected events in the energy market may trigger impulsive price increases, the momentum for a unilateral breakout remains insufficient until the inventory inflection point is confirmed.
Frequently Asked Questions (FAQ)
Q: Why has the price of Malaysian palm oil remained stable despite a significant drop in export data?
A: This is mainly due to the supporting effect of the energy market and the linkage effect of related oil products. Although exports fell by about 34% month-on-month in the first half of April, crude oil prices rebounded during the same period due to the situation, enhancing the potential value of palm oil as a biofuel. In addition, the strength of the Dalian Commodity Exchange and US soybean oil also drove safe-haven buying, offsetting some of the negative fundamental factors.
Q: How do fluctuations in the Malaysian Ringgit exchange rate specifically affect the procurement costs of Chinese importers?
A: Palm oil is traded globally in Malaysian Ringgit (MYR) and settled in US dollars. When the MYR strengthens against the US dollar, even if the price of Malaysian palm oil futures remains unchanged, the price converted to US dollars will rise. For Chinese importers, this means they need to pay more foreign exchange to purchase the same weight of the product, thus limiting import arbitrage opportunities and leading to a further contraction in import demand in the short term.
Q: Is there any seasonal basis for the analyst's claim of "second-quarter production rebound"?
A: Yes. Malaysian palm oil production exhibits a clear seasonal pattern. Typically, production is at its lowest point in the first quarter due to the rainy season and labor holidays. From April onwards, as the weather improves and the oil palm trees enter their peak fruiting period, production increases month by month until October. Current market trading is based on this expectation of increased production, leading to price adjustments.
Q: What factors are currently driving the weak demand in China and India?
A: In the Chinese market, the main reason is the relatively abundant supply of alternative vegetable oils such as soybean oil, making palm oil's price-performance advantage less significant compared to other oils. In the Indian market, previous high prices suppressed some consumer demand, and with current domestic inventory levels at reasonable levels, buyers are waiting for a price correction after production increases, thus shifting their purchasing pace towards "essential needs."
Q: Why do changes in crude oil prices directly affect palm oil prices?
A: Palm oil is one of the main raw materials for biodiesel. When crude oil prices rise, the economics of biofuels improve, which incentivizes countries like Indonesia and Malaysia to increase the blending of their domestic biodiesel, thereby reducing the amount available for export and tightening supply at the margin. Conversely, if crude oil prices fall, palm oil loses the support of industrial demand, and its price logic will revert to pricing based on food consumption.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
