Palm oil market analysis: Weak demand and a decline in external edible oil prices put downward pressure on the Malaysian benchmark contract, causing it to give back the previous day's gains.
2026-06-04 18:51:22
On Thursday, the benchmark palm oil futures contract (FCPOc3, August delivery) on the Bursa Malaysia Derivatives Exchange closed at 4,602 ringgit per tonne, down 75 ringgit, or 1.6%, from the previous trading day, completely erasing the gains of the previous day. The market traded under pressure throughout the day, showing weakness in the Asian session and failing to recover lost ground.
The current decline is due to the confluence of multiple negative factors: on the one hand, export demand in the spot market remains weak , with May shipment data showing a significant month-on-month decline; on the other hand, related external markets—soybean oil and crude oil—weaken in tandem, further weakening the valuation support for palm oil.
Data released by shipping survey agencies shows that Malaysian palm oil product exports in May fell between 8.8% and 15.5% month-on-month. This range reflects the divergence under different statistical methods, but the direction is consistent—export momentum weakened significantly in May. Previously, the market had anticipated restocking demand after Ramadan, but actual data shows that major buyers slowed their purchasing pace, and exports failed to provide effective support.
Meanwhile, a survey by a well-known institution shows that Malaysian palm oil inventories are expected to rise for the second consecutive month in May. The logic behind this inventory accumulation is that weak exports have outweighed the supply contraction effect caused by declining production during the same period. In other words, while supply has contracted somewhat due to seasonal factors, the contraction in demand has been more significant, leading to a passive accumulation of inventory. This expectation has exerted sustained downward pressure on the market.
As a core commodity in the global vegetable oil pricing system, palm oil's price movements are highly correlated with those of competing edible oils . During Asian trading hours on June 4th, the most active soybean oil contract on the Dalian Commodity Exchange fell 0.63%, while the palm oil contract fell 1.59%; soybean oil prices on the Chicago Board of Trade also fell 0.19%. The weakness in soybean oil directly weakened the price support for palm oil.
On the crude oil front, international oil prices fell on the day, primarily driven by the ceasefire agreement reached between Israel and Lebanon. The market anticipates this agreement will likely promote a broader regional peace process, potentially leading to the reopening of the Strait of Hormuz. As one of the world's most important oil shipping routes, the strait's navigation status directly impacts the risk premium for crude oil supply. Following the ceasefire announcement, the crude oil risk premium quickly declined, putting downward pressure on oil prices. The weakening of crude oil prices also means a decrease in the economic viability of palm oil as a biodiesel feedstock —when crude oil is cheap, the attractiveness of biodiesel as a substitute naturally diminishes, thus suppressing expected demand for palm oil in the energy sector.
It's worth noting that the Malaysian Ringgit (MYR) depreciated by 0.5% against the US dollar that day, making palm oil priced in Ringgit relatively cheaper for buyers holding foreign currency. Historically, currency depreciation can often buffer the decline in the prices of goods denominated in their own currency to some extent and may stimulate the purchasing intentions of some price-sensitive buyers. However, given the current overall weak demand, the support provided by the exchange rate is insufficient to reverse the market's weak trend.
David Ng, a full-time trader at Kuala Lumpur-based Iceberg X Sdn Bhd, pointed out that the day's decline was mainly dragged down by weaker soybean oil and crude oil prices during the Asian session, while the continued weakness in crude palm oil (CPO) demand also posed significant pressure. This view points directly to the core contradiction in the current market—the lack of substantial signs of improvement on the demand side, coupled with a failure of external related market trends to provide support.
In summary, the palm oil market is currently facing multiple pressures. The key short-term variables are: first, whether export data will show marginal improvement in June, especially whether the purchasing pace of major buyers India and China will change; second, the trend of crude oil prices remains dominated by geopolitical factors, with the continued implementation of the ceasefire agreement and the actual navigation status of the Strait of Hormuz being crucial observation points; and third, the price difference between soybean oil and palm oil will directly affect the competitiveness of palm oil in the international vegetable oil trade. If soybean oil continues to weaken while palm oil's decline is relatively limited, the narrowing price difference may further suppress palm oil export demand, creating a negative feedback loop.
From a fundamental perspective, if the inventory accumulation trend continues in June, it will exert sustained downward pressure on the market. However, seasonal changes in production, whether the delayed effects of El Niño will manifest in the second half of the year, and whether restocking demand in major consuming countries can be activated after the price decline are all variables that need to be continuously monitored in the future.
Frequently Asked Questions
Q1: Why do palm oil prices fluctuate in line with soybean oil and crude oil?
Palm oil, soybean oil, rapeseed oil, and other vegetable oils are in a competitive substitution relationship in the global market. When soybean oil prices fall, buyers tend to purchase cheaper varieties, forcing palm oil prices to follow suit to maintain competitiveness. Regarding crude oil, palm oil is a crucial feedstock for biodiesel production. Lower crude oil prices reduce the economic viability of biodiesel, decreasing refineries' willingness to blend palm oil-based biodiesel, thus suppressing palm oil demand in the energy sector. This multi-product-linked pricing mechanism makes it difficult for palm oil to operate independently of external markets.
Q2: May's export data showed a month-on-month decline of 8.8%-15.5%. What does this magnitude mean?
This decline indicates a significant weakening of export momentum for Malaysian palm oil. While the one to two months following Ramadan are typically a low season for demand, a drop of 8.8% to 15.5% exceeds the normal range for seasonal declines, reflecting weak purchasing intentions from major importing countries. The difference between the two shipping agency data (8.8% and 15.5%) stems from different statistical methods and covered shipping schedules, but the direction is consistent, both pointing to pressure on exports. The market impact is that if exports remain sluggish, inventories will passively accumulate, further suppressing prices.
Q3: How will the ceasefire agreement between Israel and Lebanon affect palm oil prices?
This event indirectly affected palm oil through the transmission of crude oil prices . The ceasefire agreement reduced the risk of conflict in the Middle East, and the market expected improved security for navigation in the Strait of Hormuz. The Strait of Hormuz is a major route for approximately one-third of global oil trade; reduced navigational risk means a lower probability of supply disruptions, thus putting downward pressure on oil prices. Weaker crude oil prices reduced the attractiveness of palm oil as a biodiesel feedstock, resulting in a negative transmission effect. This is a typical example of the cross-market linkage logic of "geopolitics → crude oil → vegetable oil".
Q4: Is the devaluation of the ringgit good or bad for the palm oil market?
The depreciation of the ringgit has a double-edged sword effect on the palm oil market. On the positive side, palm oil priced in ringgit becomes cheaper for buyers holding foreign currencies such as US dollars and renminbi, theoretically stimulating export demand. However, on the negative side, ringgit depreciation often reflects market concerns about the Malaysian economic outlook or capital flows, and this negative sentiment at the macro level may also spill over into commodity markets. Given the current weak exports, whether the price advantage brought by currency depreciation can truly translate into increased orders remains to be seen.
Q5: Palm oil inventories have risen for two consecutive months. What does this mean for the market outlook?
A continuous rise in inventories signifies a shift in the market from a tight supply situation to a more relaxed supply-demand balance. Typically, rising inventories suppress prices, but the speed and absolute level of inventory accumulation are crucial factors. If inventory growth slows or falls below the five-year average, its suppressive effect on prices will be limited; conversely, if inventory growth accelerates and exceeds market expectations, it could trigger a more significant correction. The current market focus is on whether exports will improve in June—if exports remain weak, inventory pressure will further increase, and the downside risk to prices will rise accordingly.
The current decline is due to the confluence of multiple negative factors: on the one hand, export demand in the spot market remains weak , with May shipment data showing a significant month-on-month decline; on the other hand, related external markets—soybean oil and crude oil—weaken in tandem, further weakening the valuation support for palm oil.
On the demand side: Export data continues to weaken, increasing pressure from inventory accumulation.
Data released by shipping survey agencies shows that Malaysian palm oil product exports in May fell between 8.8% and 15.5% month-on-month. This range reflects the divergence under different statistical methods, but the direction is consistent—export momentum weakened significantly in May. Previously, the market had anticipated restocking demand after Ramadan, but actual data shows that major buyers slowed their purchasing pace, and exports failed to provide effective support.
Meanwhile, a survey by a well-known institution shows that Malaysian palm oil inventories are expected to rise for the second consecutive month in May. The logic behind this inventory accumulation is that weak exports have outweighed the supply contraction effect caused by declining production during the same period. In other words, while supply has contracted somewhat due to seasonal factors, the contraction in demand has been more significant, leading to a passive accumulation of inventory. This expectation has exerted sustained downward pressure on the market.
Related Markets: Soybean oil and crude oil both weakened, putting pressure on palm oil price ratios.
As a core commodity in the global vegetable oil pricing system, palm oil's price movements are highly correlated with those of competing edible oils . During Asian trading hours on June 4th, the most active soybean oil contract on the Dalian Commodity Exchange fell 0.63%, while the palm oil contract fell 1.59%; soybean oil prices on the Chicago Board of Trade also fell 0.19%. The weakness in soybean oil directly weakened the price support for palm oil.
On the crude oil front, international oil prices fell on the day, primarily driven by the ceasefire agreement reached between Israel and Lebanon. The market anticipates this agreement will likely promote a broader regional peace process, potentially leading to the reopening of the Strait of Hormuz. As one of the world's most important oil shipping routes, the strait's navigation status directly impacts the risk premium for crude oil supply. Following the ceasefire announcement, the crude oil risk premium quickly declined, putting downward pressure on oil prices. The weakening of crude oil prices also means a decrease in the economic viability of palm oil as a biodiesel feedstock —when crude oil is cheap, the attractiveness of biodiesel as a substitute naturally diminishes, thus suppressing expected demand for palm oil in the energy sector.
Exchange rate factors: Ringgit depreciation provides partial hedging
It's worth noting that the Malaysian Ringgit (MYR) depreciated by 0.5% against the US dollar that day, making palm oil priced in Ringgit relatively cheaper for buyers holding foreign currency. Historically, currency depreciation can often buffer the decline in the prices of goods denominated in their own currency to some extent and may stimulate the purchasing intentions of some price-sensitive buyers. However, given the current overall weak demand, the support provided by the exchange rate is insufficient to reverse the market's weak trend.
Institutional View: Traders Focus on the Core Contradiction of Weak Demand
David Ng, a full-time trader at Kuala Lumpur-based Iceberg X Sdn Bhd, pointed out that the day's decline was mainly dragged down by weaker soybean oil and crude oil prices during the Asian session, while the continued weakness in crude palm oil (CPO) demand also posed significant pressure. This view points directly to the core contradiction in the current market—the lack of substantial signs of improvement on the demand side, coupled with a failure of external related market trends to provide support.
Key points to watch in the market outlook
In summary, the palm oil market is currently facing multiple pressures. The key short-term variables are: first, whether export data will show marginal improvement in June, especially whether the purchasing pace of major buyers India and China will change; second, the trend of crude oil prices remains dominated by geopolitical factors, with the continued implementation of the ceasefire agreement and the actual navigation status of the Strait of Hormuz being crucial observation points; and third, the price difference between soybean oil and palm oil will directly affect the competitiveness of palm oil in the international vegetable oil trade. If soybean oil continues to weaken while palm oil's decline is relatively limited, the narrowing price difference may further suppress palm oil export demand, creating a negative feedback loop.
From a fundamental perspective, if the inventory accumulation trend continues in June, it will exert sustained downward pressure on the market. However, seasonal changes in production, whether the delayed effects of El Niño will manifest in the second half of the year, and whether restocking demand in major consuming countries can be activated after the price decline are all variables that need to be continuously monitored in the future.
Frequently Asked Questions
Q1: Why do palm oil prices fluctuate in line with soybean oil and crude oil?
Palm oil, soybean oil, rapeseed oil, and other vegetable oils are in a competitive substitution relationship in the global market. When soybean oil prices fall, buyers tend to purchase cheaper varieties, forcing palm oil prices to follow suit to maintain competitiveness. Regarding crude oil, palm oil is a crucial feedstock for biodiesel production. Lower crude oil prices reduce the economic viability of biodiesel, decreasing refineries' willingness to blend palm oil-based biodiesel, thus suppressing palm oil demand in the energy sector. This multi-product-linked pricing mechanism makes it difficult for palm oil to operate independently of external markets.
Q2: May's export data showed a month-on-month decline of 8.8%-15.5%. What does this magnitude mean?
This decline indicates a significant weakening of export momentum for Malaysian palm oil. While the one to two months following Ramadan are typically a low season for demand, a drop of 8.8% to 15.5% exceeds the normal range for seasonal declines, reflecting weak purchasing intentions from major importing countries. The difference between the two shipping agency data (8.8% and 15.5%) stems from different statistical methods and covered shipping schedules, but the direction is consistent, both pointing to pressure on exports. The market impact is that if exports remain sluggish, inventories will passively accumulate, further suppressing prices.
Q3: How will the ceasefire agreement between Israel and Lebanon affect palm oil prices?
This event indirectly affected palm oil through the transmission of crude oil prices . The ceasefire agreement reduced the risk of conflict in the Middle East, and the market expected improved security for navigation in the Strait of Hormuz. The Strait of Hormuz is a major route for approximately one-third of global oil trade; reduced navigational risk means a lower probability of supply disruptions, thus putting downward pressure on oil prices. Weaker crude oil prices reduced the attractiveness of palm oil as a biodiesel feedstock, resulting in a negative transmission effect. This is a typical example of the cross-market linkage logic of "geopolitics → crude oil → vegetable oil".
Q4: Is the devaluation of the ringgit good or bad for the palm oil market?
The depreciation of the ringgit has a double-edged sword effect on the palm oil market. On the positive side, palm oil priced in ringgit becomes cheaper for buyers holding foreign currencies such as US dollars and renminbi, theoretically stimulating export demand. However, on the negative side, ringgit depreciation often reflects market concerns about the Malaysian economic outlook or capital flows, and this negative sentiment at the macro level may also spill over into commodity markets. Given the current weak exports, whether the price advantage brought by currency depreciation can truly translate into increased orders remains to be seen.
Q5: Palm oil inventories have risen for two consecutive months. What does this mean for the market outlook?
A continuous rise in inventories signifies a shift in the market from a tight supply situation to a more relaxed supply-demand balance. Typically, rising inventories suppress prices, but the speed and absolute level of inventory accumulation are crucial factors. If inventory growth slows or falls below the five-year average, its suppressive effect on prices will be limited; conversely, if inventory growth accelerates and exceeds market expectations, it could trigger a more significant correction. The current market focus is on whether exports will improve in June—if exports remain weak, inventory pressure will further increase, and the downside risk to prices will rise accordingly.
- 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.
