On Monday (August 17), crude palm oil futures on the Bursa Malaysia Derivatives Exchange traded in a narrow range, with the benchmark November contract closing at 4,715 ringgit per tonne, up 5 ringgit from the previous trading day, a gain of 0.1%. On the same day, the Malaysian government announced that the export tariff on crude palm oil would remain at 10% in September, with a reference price set at 4,392.32 ringgit per tonne, lower than August's 4,412.19 ringgit. On the trading floor, near-month contracts showed limited reaction to the policy change, with market attention focused on the premium structure of far-month contracts.

September export tariffs and reference prices

Malaysia imposes a multi-tiered tariff of 3%-10% on crude palm oil exports, which is triggered when the price exceeds 2250 ringgit/tonne. Although the reference price in September was slightly lower than the previous month, it remained significantly above the threshold, therefore the export tariff continued to apply the highest tier of 10%. The lower reference price does not change the tariff rate itself, but it indicates a slight downward shift in the official assessment of the price level for the current period. Data from shipping surveyor Intertek Testing Services showed that Malaysian palm oil product exports fell by 7.9% month-on-month from August 1-15, with data from AmSpec Agri Malaysia released later that day. The weakening export margin, coupled with a 0.22% appreciation of the ringgit against the US dollar, increased the actual procurement costs for foreign currency buyers, putting downward pressure on near-month prices.

Far-month premium and El Niño expectations

The most noticeable change on Monday was in the longer-term contracts. Contracts for delivery from February to May 2027 continued to trade above 5,000 ringgit, maintaining the premium structure for longer-term contracts . A Kuala Lumpur trader stated, "The firm pricing in longer-term contracts indicates that some market participants are positioning for potential supply tightness in 2027, anticipating that El Niño -related weather patterns could suppress palm oil production." This assessment outlines the core contradiction in the current market: near-term demand is constrained by weak export demand, while longer-term demand is supported by weather risk premiums. This is why the futures curve maintains a premium for longer-term contracts, indicating that funds have not abandoned their bets on supply contraction in 2027 despite weak short-term export data.

Related oils are linked to crude oil.

In the competitive edible oil market, the main soybean oil contract on the Dalian Commodity Exchange rose 0.55%, and the palm oil contract rose 0.25%, while soybean oil on the Chicago Board of Trade fell slightly by 0.07%. Palm oil continued to follow the overall fluctuations of the global vegetable oil market. The crude oil market strengthened on the day, with easing expectations of improved US-Iran relations and slower tanker traffic in the Strait of Hormuz leading to a rebound in geopolitical risk premiums. Rising crude oil prices increased the attractiveness of palm oil as a biodiesel feedstock, providing support for the price level. However, the appreciation of the Malaysian ringgit partially offset this positive effect, somewhat weakening the cost advantage for overseas buyers.

Indonesia's new exchange plan

In terms of news, Indonesian President Prabowo Subianto announced plans to establish a new exchange early next year to price strategic commodities for the country. This move aims to strengthen Indonesia's pricing power as the world's largest palm oil producer. If the exchange is established and generates effective liquidity, it could weaken the traditional dominance of the Malaysian Barn Dollar Market (BMD) in palm oil pricing. Currently, the market is still in a wait-and-see phase regarding the implementation details, commodity coverage, and liquidity, but as a potential new pricing variable, its subsequent progress is worth monitoring.

Market Outlook

Short-term variables focus on AmSpec export data, August's overall export performance, the ringgit's exchange rate, and crude oil prices. In the medium term, it's necessary to verify the actual impact of El Niño on 2027 production expectations and the pace of the new Indonesian exchange's development. From a technical perspective, the coexistence of weak near-term demand and long-term supply risks makes it difficult for the premium for longer-term contracts to narrow quickly. If export data remains weak, near-term pressure may be transmitted to longer-term contracts through the contract spread.

Frequently Asked Questions

1. Why is Malaysia's export tariff still 10% in September? The September reference price was 4392.32 ringgit/ton, a slight decrease from August, but still far above the 2250 ringgit/ton threshold. According to the multi-tiered tax rate mechanism, the highest tier of 10% automatically applies. 2. Does the reference price reduction mean the tax rate will decrease ? Not necessarily. The reference price reflects the official assessment of the price level at this stage. A slight decline will not change the tax rate tier. Only when prices continue to fall and approach the threshold will a tax rate reduction be triggered. 3. What does the contango structure of the far-month contracts indicate? The far- month contango indicates that some funds are pricing in potential supply tightness in 2027, driven primarily by the possibility that El Niño weather could suppress palm oil production. This contrasts with weak near-term exports, keeping the futures curve at a far-month contango. 4. What impact might the new Indonesian exchange plan have? If the new Indonesian exchange is launched and gains liquidity early next year, it may challenge the pricing influence of the Malaysian BMD. However, the implementation details, participating entities, and liquidity remain to be seen, and in the short term, it remains largely at the level of expectation. 5. Why does rising crude oil prices support palm oil? Stronger crude oil prices improve the economics of biodiesel, leading to increased demand expectations for palm oil as a biodiesel feedstock, thus supporting prices. However, currency appreciation may partially offset this positive effect.