Export recovery faces high inventory levels, and Indonesia's new policy remains unresolved: How far can this round of palm oil price recovery go?
2026-06-10 18:52:07
On Wednesday (June 10), the benchmark palm oil contract for August delivery on the Bursa Malaysia Derivatives Exchange closed at 4,539 ringgit per tonne, up 11 ringgit, or 0.24%, from the previous trading day. The market rebounded quickly after a decline the previous day, with market sentiment increasingly focused on marginal supply and demand data. A report from a well-known institution on Wednesday indicated that after-hours traders were more focused on the combined effect of improving demand and contracting supply.
The most direct driver of this rebound comes from marginal improvements in high-frequency export data and monthly production reports. Shipping survey agencies estimate that Malaysian palm oil exports in the first 10 days of June increased by 3.5% to 4.9% compared to the same period last month, sweeping away the gloom of sluggish exports in May. The core factor previously suppressing prices was the weakening momentum of overseas purchases. Now, post-Ramadan restocking demand and the re-entry of some importing countries have led the market to expect a full-month improvement in exports in June.
On the supply side, the final May figures released by the Malaysian Palm Oil Board (MPOB) confirmed a month-on-month decline in production. David Ng, a proprietary trader at Kuala Lumpur-based trading firm Iceberg X Sdn Bhd, commented directly: "The rise in crude palm oil prices, driven by upward revisions to export forecasts and the latest MPOB report showing a month-on-month decrease in production, is providing short-term support for prices." This view accurately summarizes the core logic of the day's fluctuations—after the concentrated release of previous bearish sentiment, any positive marginal changes in demand and production are likely to trigger a corrective rally.
Despite higher prices, the MPOB data still reveals underlying divergence. Malaysian palm oil inventories rose for the second consecutive month in May, driven by a larger decline in exports than production. This inventory buildup theoretically constitutes medium-term pressure. However, the strong export rebound in early June is reshaping market expectations, with traders more inclined to trade on the forward-looking narrative of an "imminent inventory inflection point." If the strong export performance in June continues, the high inventory levels in May may be seen as a temporary peak, thus relieving downward pressure on prices; conversely, if export data weakens again in the latter half of June, the narrative of declining production may struggle to independently support current valuations. This discrepancy in expectations based on constantly shifting high-frequency data will be the main source of volatility in the market over the next two weeks.
The external market provided a mildly bullish environment for palm oil. International crude oil prices remained stable, and renewed tensions between the US and Iran created uncertainty, but forecasts of declining US crude oil inventories provided downside support. The relatively high level of crude oil prices enhanced the economic appeal of palm oil as a biodiesel feedstock , particularly benefiting mandatory blending policies in Indonesia and Malaysia.
In the foreign exchange market, the Malaysian ringgit depreciated by 0.22% against the US dollar, reducing the cost of purchasing palm oil for buyers holding foreign currency and providing implicit support from the demand side. Meanwhile, soybean oil futures on the Chicago Board of Trade fell slightly by 0.01%, while soybean oil and palm oil contracts on the Dalian Commodity Exchange declined by 0.05% and 0.13% respectively. This cross-market correlation in edible oils did not drag down the Malaysian market, suggesting that the trading logic focuses on domestic supply and demand in Malaysia, rather than a global sentiment-driven market reaction in edible oils.
Another new variable worth closely monitoring this week comes from Indonesia. Indonesian trade officials are facing a series of inquiries from palm oil, coal, and ferroalloy exporters, focusing on a controversial export control plan aimed at extracting more profits from the country's natural resources. Although the plan has not yet been implemented, discussions surrounding it have already caused unease among exporters. If Indonesia further tightens export rules or adjusts taxes, global palm oil trade flows may experience another structural tightening. Given that Indonesia accounts for more than 60% of global production, any policies that increase its export costs or disrupt processes will change pricing benchmarks, passively benefiting the Malaysian market and strengthening the producing country's willingness to maintain prices. Currently, this factor is still in the expectation phase; once specific terms are released, it will quickly amplify market volatility.
In the short term, the market is on a path of sentiment recovery driven by "export rebound and production contraction," and the "short-term price support" logic mentioned by David Ng will be tested by subsequent data. Traders need to closely monitor whether export shipping data in the middle and latter part of the month can maintain month-on-month growth. If the growth rate narrows or even turns negative, inventory pressure will become the focus again. At the same time, MPOA high-frequency production data will reveal whether the production reduction trend will continue in June, and the difference between the production and export rates is the key to determining the direction of inventory.
From a long-term perspective, the direction of Indonesia's export policy represents a potential turning point, and its uncertainty has already injected a premium into the market. If the policy leans towards strict control, prices in producing countries will be difficult to ease; conversely, if the final solution is moderate or delayed, this premium may be given back. Within this framework, external fluctuations in crude oil and exchange rates will act as amplifiers, but the core pricing power remains in the hands of the supply and demand situation in producing countries and policy expectations.
Q: Why did the market close higher despite rising inventories in May?
A: The second consecutive month of inventory increases in May was due to the fact that the decline in exports exceeded the decline in production, which is a given. However, the market trades on expectations. Exports for the first 10 days of June are projected to grow by 3.5% to 4.9%, leading traders to believe that the worst of the export decline is over and that inventories may enter a destocking cycle. Coupled with MPOB's confirmation of a month-on-month production decline, this indicates that the supply side has not over-expanded. The expectation of supply contraction combined with the expectation of improved demand is sufficient to offset the actual pressure of inventory accumulation, thereby driving a price rebound.
Q: Why is David Ng's opinion important?
A: David Ng, as a local proprietary trader in Kuala Lumpur, directly participates in intraday trading of Malaysian palm oil, giving him a keen understanding of market sentiment and data logic. He clearly pointed out that the price increase was driven by two main factors: upward revisions to export forecasts and a decrease in production, and emphasized "short-term support." This assessment helps market participants clearly distinguish the nature of the current market trend—not a long-term trend reversal, but a corrective move based on improving marginal data.
Q: How will Indonesia's export control plan affect palm oil?
A: Indonesia is the world's largest producer and exporter of palm oil. Any policy that increases export costs, restricts export volumes, or changes the tax structure will tighten global tradable volumes and raise supply-side premiums. Currently, the plan is still in the consultation and discussion stage, causing anxiety among exporters, and policy details are not yet clear. Once implemented, Malaysia, as a competitor, will benefit in the short term, but global buyers will face higher procurement costs, leading to a redistribution of profits across the supply chain. This uncertainty itself has become a risk premium that the market has to factor in.
Q: What is the current relationship between crude oil and palm oil?
A: Crude oil indirectly influences palm oil prices through the biodiesel pathway. While crude oil prices have remained relatively stable, factors such as the US-Iran standoff have created market uncertainty, but the absence of a significant price collapse has ensured that the demand for palm oil as a biodiesel feedstock has not been weakened. Simultaneously, the depreciation of the Malaysian ringgit has enhanced the price competitiveness of palm oil. These two factors together create relatively favorable external macroeconomic conditions, supporting bullish market sentiment, but they have not yet become the dominant trend.
Q: What are the most important metrics to track in the future?
A: The core indicators are concentrated on three levels. First, export shipping data in mid-to-late June will verify whether the increase in the first 10 days is sustainable, which is key to verifying the validity of the demand-side logic. Second, the interim production data for June released by the MPOA will reveal whether the production reduction trend continues, and the comparison between the rate of production and export will determine whether the inventory inflection point can be established. Third, the specific content and pace of implementation of Indonesia's export control policies. This event may lead to a premium correction due to unmet expectations, or a supply-side shock caused by the implementation of the policies. Its weight will increase significantly during the policy-sensitive period.
The marginal changes in exports and production are resonating, providing short-term support for the market.
The most direct driver of this rebound comes from marginal improvements in high-frequency export data and monthly production reports. Shipping survey agencies estimate that Malaysian palm oil exports in the first 10 days of June increased by 3.5% to 4.9% compared to the same period last month, sweeping away the gloom of sluggish exports in May. The core factor previously suppressing prices was the weakening momentum of overseas purchases. Now, post-Ramadan restocking demand and the re-entry of some importing countries have led the market to expect a full-month improvement in exports in June.
On the supply side, the final May figures released by the Malaysian Palm Oil Board (MPOB) confirmed a month-on-month decline in production. David Ng, a proprietary trader at Kuala Lumpur-based trading firm Iceberg X Sdn Bhd, commented directly: "The rise in crude palm oil prices, driven by upward revisions to export forecasts and the latest MPOB report showing a month-on-month decrease in production, is providing short-term support for prices." This view accurately summarizes the core logic of the day's fluctuations—after the concentrated release of previous bearish sentiment, any positive marginal changes in demand and production are likely to trigger a corrective rally.
An Analysis of the Continuous Rise in Inventory and the Contradictions in Reality
Despite higher prices, the MPOB data still reveals underlying divergence. Malaysian palm oil inventories rose for the second consecutive month in May, driven by a larger decline in exports than production. This inventory buildup theoretically constitutes medium-term pressure. However, the strong export rebound in early June is reshaping market expectations, with traders more inclined to trade on the forward-looking narrative of an "imminent inventory inflection point." If the strong export performance in June continues, the high inventory levels in May may be seen as a temporary peak, thus relieving downward pressure on prices; conversely, if export data weakens again in the latter half of June, the narrative of declining production may struggle to independently support current valuations. This discrepancy in expectations based on constantly shifting high-frequency data will be the main source of volatility in the market over the next two weeks.
External factors: constraints from crude oil, exchange rates, and competing edible oils.
The external market provided a mildly bullish environment for palm oil. International crude oil prices remained stable, and renewed tensions between the US and Iran created uncertainty, but forecasts of declining US crude oil inventories provided downside support. The relatively high level of crude oil prices enhanced the economic appeal of palm oil as a biodiesel feedstock , particularly benefiting mandatory blending policies in Indonesia and Malaysia.
In the foreign exchange market, the Malaysian ringgit depreciated by 0.22% against the US dollar, reducing the cost of purchasing palm oil for buyers holding foreign currency and providing implicit support from the demand side. Meanwhile, soybean oil futures on the Chicago Board of Trade fell slightly by 0.01%, while soybean oil and palm oil contracts on the Dalian Commodity Exchange declined by 0.05% and 0.13% respectively. This cross-market correlation in edible oils did not drag down the Malaysian market, suggesting that the trading logic focuses on domestic supply and demand in Malaysia, rather than a global sentiment-driven market reaction in edible oils.
Indonesia's new export policy has caused market anxiety once again.
Another new variable worth closely monitoring this week comes from Indonesia. Indonesian trade officials are facing a series of inquiries from palm oil, coal, and ferroalloy exporters, focusing on a controversial export control plan aimed at extracting more profits from the country's natural resources. Although the plan has not yet been implemented, discussions surrounding it have already caused unease among exporters. If Indonesia further tightens export rules or adjusts taxes, global palm oil trade flows may experience another structural tightening. Given that Indonesia accounts for more than 60% of global production, any policies that increase its export costs or disrupt processes will change pricing benchmarks, passively benefiting the Malaysian market and strengthening the producing country's willingness to maintain prices. Currently, this factor is still in the expectation phase; once specific terms are released, it will quickly amplify market volatility.
Future Focus and Logical Deduction
In the short term, the market is on a path of sentiment recovery driven by "export rebound and production contraction," and the "short-term price support" logic mentioned by David Ng will be tested by subsequent data. Traders need to closely monitor whether export shipping data in the middle and latter part of the month can maintain month-on-month growth. If the growth rate narrows or even turns negative, inventory pressure will become the focus again. At the same time, MPOA high-frequency production data will reveal whether the production reduction trend will continue in June, and the difference between the production and export rates is the key to determining the direction of inventory.
From a long-term perspective, the direction of Indonesia's export policy represents a potential turning point, and its uncertainty has already injected a premium into the market. If the policy leans towards strict control, prices in producing countries will be difficult to ease; conversely, if the final solution is moderate or delayed, this premium may be given back. Within this framework, external fluctuations in crude oil and exchange rates will act as amplifiers, but the core pricing power remains in the hands of the supply and demand situation in producing countries and policy expectations.
Frequently Asked Questions
Q: Why did the market close higher despite rising inventories in May?
A: The second consecutive month of inventory increases in May was due to the fact that the decline in exports exceeded the decline in production, which is a given. However, the market trades on expectations. Exports for the first 10 days of June are projected to grow by 3.5% to 4.9%, leading traders to believe that the worst of the export decline is over and that inventories may enter a destocking cycle. Coupled with MPOB's confirmation of a month-on-month production decline, this indicates that the supply side has not over-expanded. The expectation of supply contraction combined with the expectation of improved demand is sufficient to offset the actual pressure of inventory accumulation, thereby driving a price rebound.
Q: Why is David Ng's opinion important?
A: David Ng, as a local proprietary trader in Kuala Lumpur, directly participates in intraday trading of Malaysian palm oil, giving him a keen understanding of market sentiment and data logic. He clearly pointed out that the price increase was driven by two main factors: upward revisions to export forecasts and a decrease in production, and emphasized "short-term support." This assessment helps market participants clearly distinguish the nature of the current market trend—not a long-term trend reversal, but a corrective move based on improving marginal data.
Q: How will Indonesia's export control plan affect palm oil?
A: Indonesia is the world's largest producer and exporter of palm oil. Any policy that increases export costs, restricts export volumes, or changes the tax structure will tighten global tradable volumes and raise supply-side premiums. Currently, the plan is still in the consultation and discussion stage, causing anxiety among exporters, and policy details are not yet clear. Once implemented, Malaysia, as a competitor, will benefit in the short term, but global buyers will face higher procurement costs, leading to a redistribution of profits across the supply chain. This uncertainty itself has become a risk premium that the market has to factor in.
Q: What is the current relationship between crude oil and palm oil?
A: Crude oil indirectly influences palm oil prices through the biodiesel pathway. While crude oil prices have remained relatively stable, factors such as the US-Iran standoff have created market uncertainty, but the absence of a significant price collapse has ensured that the demand for palm oil as a biodiesel feedstock has not been weakened. Simultaneously, the depreciation of the Malaysian ringgit has enhanced the price competitiveness of palm oil. These two factors together create relatively favorable external macroeconomic conditions, supporting bullish market sentiment, but they have not yet become the dominant trend.
Q: What are the most important metrics to track in the future?
A: The core indicators are concentrated on three levels. First, export shipping data in mid-to-late June will verify whether the increase in the first 10 days is sustainable, which is key to verifying the validity of the demand-side logic. Second, the interim production data for June released by the MPOA will reveal whether the production reduction trend continues, and the comparison between the rate of production and export will determine whether the inventory inflection point can be established. Third, the specific content and pace of implementation of Indonesia's export control policies. This event may lead to a premium correction due to unmet expectations, or a supply-side shock caused by the implementation of the policies. Its weight will increase significantly during the policy-sensitive period.
- 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.
