On Friday (August 7), crude palm oil futures on the Bursa Malaysia Derivatives Exchange (BMD) closed lower, with the benchmark October 2026 contract falling 8 ringgit to settle at 4,678 ringgit per tonne. Despite the day's decline, the contract still recorded a weekly gain of approximately 0.54%, marking its fourth weekly increase in the past five weeks. Year-to-date, palm oil futures have risen by 15.26%.

Inventory expectations and weak exports are putting downward pressure on prices in the short term.

Friday's market weakness stemmed primarily from two pressures. Kenanga Futures analysts noted that market sentiment remained subdued ahead of the Malaysian Palm Oil Board's (MPOB) release of key industry supply and demand data, with expectations of rising palm oil inventories weighing on prices. The firm anticipates short-term support for the October contract at 4650 ringgit and resistance at 4740 ringgit, with current prices in the middle of the range; a directional breakout requires further clarity from fundamental signals. Anilkumar Bagani, Head of Commodity Research at Sunvin Group, similarly stated that the decline in crude palm oil futures was related to anticipated increases in Malaysian palm oil inventories and weak forward sales. The MPOB will release its July supply and demand data on Monday, August 10th (Beijing time). An industry survey showed that analysts on average expect Malaysian palm oil inventories to reach 2.61 million tons at the end of July, a 2.5% increase month-on-month, marking the fourth consecutive month of inventory growth and reaching the highest level since February. The survey also shows that crude palm oil production in July is expected to increase by 7.4% month-on-month to 1.76 million tons, marking the second consecutive month of growth, perfectly in line with the traditional peak production season in Southeast Asia from June to October. Palm oil product exports in July are expected to increase by 14.8% month-on-month to 1.382 million tons, also for the second consecutive month. The faster growth in production than demand means that even with strong exports, inventories will still climb to a five-month high. This indicates that the market's current focus is shifting from the supply side to the real pressure of inventory accumulation—near-month contracts are unlikely to receive substantial bullish support, while the pressure is reflected in the continued downward pressure on prices.

Export data shows initial signs of weakness, and demand in early August remains uncertain.

Data from shipping surveyors further exacerbated market concerns about demand. ITS data showed that Malaysian palm oil exports totaled 114,860 tons from August 1st to 5th, a sharp 42.81% decrease compared to 200,832 tons in the same period last month. Although complete export data for August 1st to 10th will be released on August 10th, the same day as the MPOB monthly report, the sharp drop at the beginning of the month has already prompted traders to reassess the overall export outlook for August. This data contrasts sharply with the strong performance in July—palm oil exports in July increased by 12.1% to 19.5% month-on-month. The significant drop in exports at the beginning of the month suggests that the concentrated restocking before the Indian holiday season may have been partially completed, and there is considerable uncertainty as to whether demand can remain high in August. In the coming week, traders need to closely monitor the export data from August 1st to 10th, as this will be a key guide for judging the supply and demand pattern in August.

Crude oil strengthens as external markets provide bottom support.

Despite significant fundamental pressures, the market still has supporting factors. During Friday's Asian trading session, ICE Brent crude futures rose $0.94 to $83.43 per barrel. Further concerns arose regarding passage through the Strait of Hormuz – Iran is reportedly cooperating with Oman to propose banning vessels deemed hostile from the strait. The stronger crude futures prices made palm oil more attractive as a biodiesel feedstock. Meanwhile, competing edible oils showed mixed performance. Soybean oil futures on the Chicago Board of Trade rose 0.25%, while September soybean oil futures on the Dalian Commodity Exchange rose 18 yuan to 8429 yuan/ton, while September palm oil futures fell 43 yuan to 9341 yuan/ton. The Malaysian ringgit weakened slightly by 0.02% against the US dollar, to 4.0880 ringgit per dollar, making palm oil, priced in its own currency, slightly cheaper for overseas buyers.

Weather premium and far-month expectations: a deep divergence in bullish and bearish logic

The current palm oil market exhibits a clear divergence between bullish and bearish logic. Short-term pressures are evident: producing regions are in their seasonal production boom, inventories continue to accumulate, and domestic port inventories remain high. June to October is the traditional production boom period in Southeast Asia. SPPOMA data shows that Malaysian palm oil production maintained its recovery trend in July, with fresh fruit bunch output steadily increasing. Indonesian production also remains high, with the two major producing countries continuing to release supply, creating sustained downward pressure in the near term. However, the long-term logic is entirely different. A moderate El Niño phenomenon continues to affect Southeast Asia, with rainfall in Malaysia's main producing areas remaining below the long-term average, and hot, dry weather persisting. El Niño will lead to continued high temperatures and drought in Southeast Asia's main palm oil producing areas in the fourth quarter. Due to the shallow root system of oil palm, there is a lag effect of 8 to 10 months in production reduction. Oil palm growth has a lag effect of 8 to 12 months; the current drought has not yet translated into a decline in current production, only increasing the valuation of future production reductions. If the drought worsens further in July and August, the market will further revise its production reduction expectations for the first half of 2027. This indicates that the palm oil market is in a typical "weak reality, strong expectation" pattern—funds continue to flow into far-month contracts at a premium, while near-month contracts struggle to realize positive news. The market maintains a near-weak, far-strong structure, and wide-range fluctuations will remain the main theme in the short term.

Frequently Asked Questions

Q: Why did palm oil prices fall on Friday, but still rise on the weekly chart? A: Friday's decline was mainly due to expectations of inventory accumulation and a sharp drop in exports at the beginning of the month. Traders were cautious ahead of the MPOB monthly report. However, earlier this week, driven by stronger crude oil and rising prices of competing edible oils, the contract rose to 4704 ringgit, still recording a weekly gain overall, marking the fourth weekly increase in five weeks. Q: What are market expectations for the MPOB July report? A: Market surveys show that analysts on average expect July inventories to increase by 2.5% month-on-month to 2.61 million tons (a five-month high), production to increase by 7.4% month-on-month to 1.76 million tons, and exports to increase by 14.8% month-on-month to 1.38 million tons. The report will be released at noon Beijing time on August 10th. Q: Why did export data decline sharply in early August? A: ITS data shows that exports from August 1st to 5th plummeted by 42.8% month-on-month. Pre-holiday stockpiling in India in July raised the base figure, and the slowdown in purchasing in early August is a normal adjustment. However, the significant drop has raised concerns about overall exports in August. Complete data for August 1-10 will be released on August 10. Q: Why is there disagreement about the impact of El Niño on palm oil prices? A: The current drought will not immediately lead to a decrease in production; palm oil's response to climate change has a lag of 8-12 months. Therefore, the short-term pressure remains the reality of increased production and inventory accumulation, while the expectation of reduced production is only reflected in the weather premium of the far-month contracts, forming a "near-month weak, far-month strong" price spread structure. Q: What are the key indicators to observe for the short-term direction of palm oil? A: Three core indicators: first, the verification of inventory expectations in the MPOB monthly report on August 10; second, the actual performance of export data from August 1-10; and third, the transmission of crude oil price trends to biodiesel demand expectations. Kenanga Futures believes that the current price is in the middle of the 4650-4740 ringgit range, and a directional breakout requires further clarification of fundamental signals.