On Tuesday (July 28), the benchmark palm oil contract for October delivery on the Bursa Malaysia Derivatives Exchange fell for the second consecutive trading day, closing down 30 ringgit, or 0.64%, at 4,643 ringgit per tonne. It has fallen a cumulative 1.67% over the past two trading days. Weakness in the external energy market and related vegetable oils created collective selling pressure on palm oil prices, but positive demand-side factors mitigated the decline to some extent.

External market factors weighed on the energy sector, putting pressure on its energy attributes.

This round of decline mirrored the drops in Chicago soybean oil and crude oil prices. Market data showed that the main soybean oil contract on the Dalian Commodity Exchange fell 1.21% and the palm oil contract fell 1.22% on the day; soybean oil prices on the Chicago Board of Trade also fell 1.05%. Paramalingam Supramaniam, director of the Selangor brokerage firm Pelindung Bestari, noted, "In line with the decline in crude oil and Chicago soybean oil prices, the crude palm oil futures market also faced selling pressure." In the crude oil market, driven by expectations of easing tensions between the US and Iran, oil prices continued their decline, hitting a more than one-week low. For palm oil, the competitiveness of biodiesel feedstock is highly linked to fossil fuel prices; lower crude oil prices directly weakened the narrative of palm oil's substitution demand in the energy sector. Meanwhile, the Malaysian ringgit weakened by 0.15% against the US dollar on the day, slightly lowering the nominal cost of palm oil for foreign currency buyers, providing a slight buffer from the exchange rate side, but it was still insufficient to completely offset systemic selling pressure.

Demand remains resilient, while production recovery is slow.

In contrast to the weak market performance, the fundamentals are releasing some positive signals. The latest estimates from shipping surveyors show that Malaysian palm oil exports from July 1st to 25th jumped 8.1% to 15.9% compared to the same period last month, significantly exceeding market expectations. This increase reflects robust restocking demand in major consuming countries, particularly in markets like India where pre-holiday stockpiling momentum has not yet weakened. Changes on the supply side also warrant close scrutiny. Paramalingam Supramaniam added, "July's export data looks very promising, while production has only increased slightly so far." Typically, the third quarter marks the beginning of the seasonal production increase cycle, but the current weak recovery in production suggests that inventory pressure may be delayed. He further asserted, "I believe this sell-off will ultimately generate good buying interest, both in the local and export markets." This indicates that the industry views the current price pullback as a correction of the previous rally, rather than a signal of a turning bearish fundamentals.

Short-term logical deduction and core variables

The current palm oil market is caught in a tug-of-war between external sentiment pressure and internal support. The weakness in Chicago soybean oil and Dalian edible oil futures stems more from the contraction of the global vegetable oil premium than from a collapse in palm oil demand itself. Once crude oil prices stabilize due to sentiment, palm oil, with its strong export data, may see its price spread recover faster than other vegetable oils. Two key variables need to be closely monitored going forward. First, whether Malaysia's full-month export and production high-frequency data can maintain their current trends. If exports maintain double-digit growth throughout July while production increases remain sluggish, end-of-month inventory expectations will be revised downwards, thus establishing a bottom for the market. Second, the enforcement of Indonesia's palm oil export policy and biodiesel blending targets will determine the market's reassessment of the overall Southeast Asian balance sheet. Given that current prices have largely priced in macroeconomic premiums, these marginal changes in supply and policy will play a decisive role in the market's directional choice.

Frequently Asked Questions

Question 1: Why did palm oil prices continue to fall on Tuesday? The direct trigger was the resonance caused by the decline in crude oil and Chicago soybean oil prices. Crude oil hit a more than one-week low, reducing palm oil's competitiveness as a biodiesel feedstock; the weak sentiment represented by soybean oil, along with other major vegetable oils, made it difficult for palm oil to move independently. Question 2: Why did strong export data fail to stop the decline? Export growth reflects the resilience of long-term demand, while the market was dominated by immediate external sentiment on the day. When energy and soybean oil prices fell simultaneously, systemic long liquidation pressure suppressed the fundamental positives. Analysts believe this divergence will stimulate buying interest later. Question 3: How do institutional analysts view the current market situation? Paramalingam Supramaniam, director of Pelindung Bestari, said that palm oil followed crude oil and soybean oil under pressure, but the July export data is promising, and production has only slightly rebounded. This sell-off will ultimately bring good buying interest in both the local and export markets. Question 4: What impact does the depreciation of the Malaysian Ringgit have on palm oil? The ringgit weakened by 0.15% against the US dollar, slightly reducing the cost of palm oil for dollar-denominated buyers. This is equivalent to a hidden price reduction, which theoretically could stimulate international purchasing demand and provide some buffer for the market. Question 5: What key variables need to be observed going forward? We need to pay close attention to Malaysia's full-month export and production data for July to determine whether the pressure of inventory accumulation has truly been postponed. Meanwhile, Indonesia's export policies and the implementation of biodiesel blending will affect the overall balance sheet expectations in Southeast Asia and are core factors guiding price direction.