Palm oil's "monthly defense line" breaks: When the ceasefire agreement collides with biodiesel expectations, will the premium return or the bottom collapse?
2026-04-17 18:30:00
On Friday (April 17), global edible oil market sentiment weakened significantly. At the close of trading, the benchmark July palm oil contract on the Bursa Malaysia Derivatives Exchange (BMD) fell 44 ringgit, or 0.98%, to settle at 4,451 ringgit per tonne. This closing price not only marked the lowest point since March 10 this year, but also signified the second consecutive week of declines for Malaysian palm oil futures, with a cumulative weekly drop of 1.92%.
The market performance that day exhibited clear external linkages. During the Asian trading session, palm oil's appeal as a biodiesel feedstock decreased, dragged down by falling international crude oil prices and softening soybean oil prices on the Chicago Board of Trade (CBOT), leading to increased selling pressure. Simultaneously, the Malaysian ringgit appreciated slightly by 0.05% against the US dollar, further increasing procurement costs for buyers holding foreign currency and weakening the price competitiveness of Malaysian palm oil in the international market.
One of the core negative factors leading to this price decline stems from the sharp fluctuations in the energy market. Recent signs of easing tensions in the Middle East, with the 10-day ceasefire agreement between Lebanon and Israel significantly reducing market concerns about regional conflict. Furthermore, news that the US and Iran might hold further talks over the weekend has prompted a shift in sentiment in the crude oil market from aggressive to cautious.
David Ng, a well-known analyst , pointed out that the decline in crude oil prices directly squeezed the profit margins of biodiesel, weakening the commercial logic of palm oil as an alternative energy source. Since palm oil is a substitute for competing vegetable oils such as soybean oil in the international market, the 0.54% drop in CBOT soybean oil prices also had a negative impact.
It's worth noting that compared to the sluggish performance of overseas markets, the Dalian Commodity Exchange (DCE) in China showed relative resilience. The DCE palm oil futures contract bucked the trend, rising 1.26% on the day, while soybean oil futures also saw a 0.46% increase. This divergence between domestic and international market trends reflects the different focuses in trading logic across markets: the domestic market seems more concerned with current inventory levels and spot demand, while the international market is heavily influenced by geopolitical factors and significant fluctuations in energy prices.
Despite short-term pressure from macroeconomic factors, the supply and demand fundamentals of palm oil remain relatively resilient. The Malaysian Palm Oil Board (MPOB) recently released a significant long-term bullish forecast, indicating that as Malaysia gradually follows Indonesia's lead in increasing the blending ratio of biodiesel to reduce its reliance on imported energy, annual consumption of palm oil-based biodiesel in Malaysia is expected to increase by more than 300,000 tons.
This policy expectation provides medium- to long-term demand support for the market. However, traders seem more inclined to trade on the "immediate bearish factor" at this stage. Analysts from well-known institutions believe that the market focus is shifting from seasonal concerns on the supply side to real pressures on the demand side. Given the generally ample global supply of vegetable oils and the dynamic adjustment of price spreads among alternative oils, for palm oil to resume its upward trend, a substantial decline in production area inventory data or further strengthening of biodiesel policies at the implementation level is urgently needed.
Looking ahead to next week, the palm oil market will enter a crucial phase. Traders should closely monitor potential geopolitical developments over the weekend. If the ceasefire agreement continues and diplomatic dialogue achieves a breakthrough, crude oil prices could decline further, thus putting sustained pressure on palm oil prices.
Furthermore, next week's upcoming export data and production estimates from producing countries will be crucial indicators of whether the key support level of 4450 ringgit holds. If export growth fails to keep pace with production recovery, the market may continue to test the trading range of March. Conversely, if policymakers release more details regarding the implementation of mandatory blending ratios, it could offset bearish sentiment from external markets.
Q: Why did the easing of tensions in the Middle East directly lead to a drop in Malaysian palm oil prices?
A: Palm oil is not only an edible oil but also a key raw material for biodiesel. When there are signs of a ceasefire between Lebanon and Israel or dialogue between the US and Iran, the geopolitical risk premium in crude oil prices diminishes, and the decline in crude oil prices leads to a decrease in the economic benefits of biodiesel, thereby weakening the industrial demand for palm oil as a fuel substitute.
Q: What does the appreciation of the ringgit mean for international buyers?
A: Malaysian palm oil is priced in the ringgit. When the ringgit appreciates against the US dollar, international buyers need to spend more US dollars to purchase the same amount of ringgit for settlement. This effectively increases import costs, making palm oil appear "more expensive" when other oil prices fall, thus suppressing export demand.
Q: What is the current technical position of Malaysian palm oil prices?
A: The Malaysian palm oil benchmark contract has fallen to 4451 ringgit/tonne, the lowest closing price since March 10. Breaking below this level means the market has erased most of the gains of the past month and a half, and technically is in the process of a double bottom. Furthermore, two consecutive weeks of bearish weekly closes indicate a weak short-term trend.
Q: Why did the Dalian Commodity Exchange (DCE) remain relatively strong when Malaysian palm oil prices fell?
A: This usually reflects regional supply and demand differences. The trend of DCE is more supported by domestic port inventories, arrival costs, and domestic spot market demand for vegetable oils in China. If domestic inventories are low or the market is concerned about subsequent shipping schedules, domestic contracts will show stronger resilience than overseas contracts, and may even rise against the trend.
Q: What is the impact of Malaysia increasing its biodiesel consumption by 300,000 tons?
A: This is a structural, long-term positive factor. By increasing the mandatory blending ratio, Malaysia can absorb more of its domestic excess inventory and reduce its over-reliance on exports. Although 300,000 tons is not a huge percentage of global production, it signals that the producing country's government is supporting prices through policy measures, which helps to create psychological support when prices are extremely low.
The market performance that day exhibited clear external linkages. During the Asian trading session, palm oil's appeal as a biodiesel feedstock decreased, dragged down by falling international crude oil prices and softening soybean oil prices on the Chicago Board of Trade (CBOT), leading to increased selling pressure. Simultaneously, the Malaysian ringgit appreciated slightly by 0.05% against the US dollar, further increasing procurement costs for buyers holding foreign currency and weakening the price competitiveness of Malaysian palm oil in the international market.
The decline in crude oil geopolitical premiums and the divergence in the trends of substitute edible oils
One of the core negative factors leading to this price decline stems from the sharp fluctuations in the energy market. Recent signs of easing tensions in the Middle East, with the 10-day ceasefire agreement between Lebanon and Israel significantly reducing market concerns about regional conflict. Furthermore, news that the US and Iran might hold further talks over the weekend has prompted a shift in sentiment in the crude oil market from aggressive to cautious.
David Ng, a well-known analyst , pointed out that the decline in crude oil prices directly squeezed the profit margins of biodiesel, weakening the commercial logic of palm oil as an alternative energy source. Since palm oil is a substitute for competing vegetable oils such as soybean oil in the international market, the 0.54% drop in CBOT soybean oil prices also had a negative impact.
It's worth noting that compared to the sluggish performance of overseas markets, the Dalian Commodity Exchange (DCE) in China showed relative resilience. The DCE palm oil futures contract bucked the trend, rising 1.26% on the day, while soybean oil futures also saw a 0.46% increase. This divergence between domestic and international market trends reflects the different focuses in trading logic across markets: the domestic market seems more concerned with current inventory levels and spot demand, while the international market is heavily influenced by geopolitical factors and significant fluctuations in energy prices.
Supply and demand fundamentals: the interplay between production and sales and structural support
Despite short-term pressure from macroeconomic factors, the supply and demand fundamentals of palm oil remain relatively resilient. The Malaysian Palm Oil Board (MPOB) recently released a significant long-term bullish forecast, indicating that as Malaysia gradually follows Indonesia's lead in increasing the blending ratio of biodiesel to reduce its reliance on imported energy, annual consumption of palm oil-based biodiesel in Malaysia is expected to increase by more than 300,000 tons.
This policy expectation provides medium- to long-term demand support for the market. However, traders seem more inclined to trade on the "immediate bearish factor" at this stage. Analysts from well-known institutions believe that the market focus is shifting from seasonal concerns on the supply side to real pressures on the demand side. Given the generally ample global supply of vegetable oils and the dynamic adjustment of price spreads among alternative oils, for palm oil to resume its upward trend, a substantial decline in production area inventory data or further strengthening of biodiesel policies at the implementation level is urgently needed.
Future Trading Strategies and Focus Areas
Looking ahead to next week, the palm oil market will enter a crucial phase. Traders should closely monitor potential geopolitical developments over the weekend. If the ceasefire agreement continues and diplomatic dialogue achieves a breakthrough, crude oil prices could decline further, thus putting sustained pressure on palm oil prices.
Furthermore, next week's upcoming export data and production estimates from producing countries will be crucial indicators of whether the key support level of 4450 ringgit holds. If export growth fails to keep pace with production recovery, the market may continue to test the trading range of March. Conversely, if policymakers release more details regarding the implementation of mandatory blending ratios, it could offset bearish sentiment from external markets.
Frequently Asked Questions (FAQ)
Q: Why did the easing of tensions in the Middle East directly lead to a drop in Malaysian palm oil prices?
A: Palm oil is not only an edible oil but also a key raw material for biodiesel. When there are signs of a ceasefire between Lebanon and Israel or dialogue between the US and Iran, the geopolitical risk premium in crude oil prices diminishes, and the decline in crude oil prices leads to a decrease in the economic benefits of biodiesel, thereby weakening the industrial demand for palm oil as a fuel substitute.
Q: What does the appreciation of the ringgit mean for international buyers?
A: Malaysian palm oil is priced in the ringgit. When the ringgit appreciates against the US dollar, international buyers need to spend more US dollars to purchase the same amount of ringgit for settlement. This effectively increases import costs, making palm oil appear "more expensive" when other oil prices fall, thus suppressing export demand.
Q: What is the current technical position of Malaysian palm oil prices?
A: The Malaysian palm oil benchmark contract has fallen to 4451 ringgit/tonne, the lowest closing price since March 10. Breaking below this level means the market has erased most of the gains of the past month and a half, and technically is in the process of a double bottom. Furthermore, two consecutive weeks of bearish weekly closes indicate a weak short-term trend.
Q: Why did the Dalian Commodity Exchange (DCE) remain relatively strong when Malaysian palm oil prices fell?
A: This usually reflects regional supply and demand differences. The trend of DCE is more supported by domestic port inventories, arrival costs, and domestic spot market demand for vegetable oils in China. If domestic inventories are low or the market is concerned about subsequent shipping schedules, domestic contracts will show stronger resilience than overseas contracts, and may even rise against the trend.
Q: What is the impact of Malaysia increasing its biodiesel consumption by 300,000 tons?
A: This is a structural, long-term positive factor. By increasing the mandatory blending ratio, Malaysia can absorb more of its domestic excess inventory and reduce its over-reliance on exports. Although 300,000 tons is not a huge percentage of global production, it signals that the producing country's government is supporting prices through policy measures, which helps to create psychological support when prices are extremely low.
- 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.
