On Friday (August 14), the BMD crude palm oil October contract closed at 4711 ringgit/ton, down 13 ringgit, but up 1.03% so far this week, marking the second consecutive week of gains. In the spot market, RBD palm oil for August loading at Malaysian ports was quoted at $1140/ton, down $2.5 from the previous day; September at $1155/ton, down $5; October/November/December at $1197.5/ton, unchanged; January/February/March at $1240/ton, up $7.5; and April/May/June at $1242.5/ton, up $7.5. CPO (Crude Oil Produced) for South Malaysia August delivery was quoted at 4520 ringgit/ton, down 10 ringgit. RBD (Raw Stearin) for August was quoted at $1115/ton, up $5. The weakening near-month prices and rising far-month prices indicate that the market is pricing in immediate inventory pressure and long-term supply risks separately.

Inventory pressure and weather premium

The price decline was not driven by a single factor. Kenanga Futures noted in a report that palm oil fell during the Asian session, following the weakness of alternative oils, with the weekend approaching; strong pre-holiday export demand in India limited the decline. David Ng (proprietary trader at Kuala Lumpur-based trading firm Iceberg X Sdn Bhd) stated that prices were pressured by rising inventories at the end of July and weakness in Chicago soybean oil, but El Niño-related weather disturbances and stronger energy prices narrowed the decline. MPOB data on August 10th showed that Malaysian palm oil inventories rose to a five-month high in July, with production continuing to outpace export demand growth. This fundamental pressure, offset by weather premiums, kept the market in a narrow trading range. China's Dalian soybean oil futures contract rose 0.6%, and palm oil futures rose 0.78%; Chicago soybean oil fell slightly by 0.09%. Palm oil will continue to follow the overall trend of global vegetable oils.

Energy, exchange rates and Indian procurement

A new geopolitical premium emerged in the crude oil market. Renewed risks to Iranian oil supply caused international oil prices to rebound from the previous trading day's decline, triggered by weakening demand prospects and a surge in crude oil inventories in major consuming countries. Stronger crude oil futures increased the attractiveness of palm oil as a biodiesel feedstock . In terms of exchange rates, the ringgit appreciated 0.12% against the US dollar, slightly increasing procurement costs denominated in foreign currencies. The Solvent Extractors Association of India (SEA) reported that India's edible oil imports rose to a 10-month high in July, as refiners increased palm oil and soybean oil purchases ahead of the holidays to replenish inventories. This demand provided support for near-month prices but did not fully offset the downward pressure from inventories and weak soybean oil prices.

Follow-up Focus

From the current structure, near-month contracts are suppressed by high July inventories, while far-month contracts are taking into account more weather risks. The market focus for the next two weeks will be on: whether Malaysian export data for the first half of August will reflect the strength of Indian restocking; whether El Niño will have a substantial impact on Southeast Asian rainfall and palm oil yields; and whether the geopolitical premium for crude oil will continue, thus affecting biodiesel demand expectations. If August export growth is insufficient to absorb increased production, near-month pressure may be transmitted to far-month contracts; conversely, if weather disturbances expand or Indian purchases escalate further, the far-month premium structure will remain supported. Continued appreciation of the ringgit will also partially weaken the purchasing intentions of non-ringgit buyers.

Frequently Asked Questions

1. Why did palm oil fall on Friday, but is it still expected to rise this week? Friday's decline was mainly due to weakness in CBOT soybean oil and high July inventory levels. However, earlier this week, El Niño concerns and stronger crude oil prices pushed prices higher, so the weekly chart still shows positive returns. 2. What does the rise in Malaysian July inventories mean? MPOB data shows that production exceeded export demand, and inventories rose to a five-month high. Short-term supply easing limits the upside potential of near-month contracts, but does not directly change weather-based pricing in longer-term contracts. 3. How much does Indian demand affect palm oil? India's edible oil imports hit a 10-month high in July. Pre-holiday restocking provided support for near-month contracts, but its sustainability depends on the pace of August purchases and the palm oil-to-soybean oil price spread. 4. How does El Niño affect palm oil prices? El Niño may cause abnormal rainfall in Southeast Asia, affecting palm oil yields. The market therefore includes weather premiums in longer-term contracts. 5. Why are crude oil prices related to palm oil? Palm oil can be used as a feedstock for biodiesel. Stronger crude oil prices improve the economics of biodiesel, thereby increasing expectations of industrial demand for palm oil.