On Wednesday (August 26), crude palm oil futures on the Malaysian Derivatives Exchange fell for the second consecutive trading day. The benchmark November contract closed at 4,867 ringgit per tonne, down 79 ringgit or 1.6%; it had already fallen 1.43% in the previous trading day. This decline occurred after prices reached 5,000 ringgit on August 21, a new high since December 2024, with profit-taking pressure from a cumulative increase of 6.54% over five trading days, combined with negative demand factors.

Export data weakened, and inventory expectations rose.

According to data released after market close by AmSpec Agri, a well-known research firm, Malaysian palm oil product exports totaled 1.0082 million tons from August 1st to 25th, a decrease of 11.4% compared to 1.1376 million tons in the same period of July. Among the sub-categories, RBD palm oil exports fell from 293,900 tons to 164,100 tons, a drop of over 44%; PFAD exports fell from 53,100 tons to 26,400 tons, nearly halved; and CPO exports fell from 281,700 tons to 238,600 tons, a decrease of approximately 15.3%. These three categories were the main drags on the overall decline. During the same period, RBD palm stearin exports increased from 68,100 tons to 109,300 tons, and palm kernel oil exports increased from 2,000 tons to 9,500 tons, indicating that industrial demand remained somewhat resilient, but this was insufficient to compensate for the shortfall in edible products. Another research firm, ITS, estimated a 20% decline in exports during the same period earlier in the day. While AmSpec's data was better than that figure, it still confirmed the weakening of exports in August. Looking at the monthly figures, Malaysia's exports reached 1.4283 million tons in July, an increase of 153,700 tons, or 12.1%, month-on-month; June exports reached 1.2745 million tons, an increase of 11.9% month-on-month; while May and April saw declines of 15.5% and 16.2%, respectively. The double-digit decline in the first 25 days of August suggests that if production fails to pick up in the final days, the month's export growth may end. With the seasonal production peak in September and October, inventory accumulation may be faster than previously expected.

Multiple factors exert pressure on soybean oil, including competition and macroeconomic disturbances.

The price decline is not due to a single factor. Paramalingam Supramaniam, director of brokerage Pelindung Bestari, stated that the rapid rise in palm oil prices earlier had weakened its competitiveness relative to soybean oil. Soybean oil prices at Indian ports are now lower than palm oil, squeezing refining margins to extremely thin levels. He predicts that if demand does not recover significantly, inventories are likely to rise, especially during the peak production season in September and October. This concern is confirmed in the spot market. On August 26th, Malaysian spot prices fell across the board: September shipment RBD palm oil FOB was quoted at $1190/ton, down $12.5; October-December shipment was quoted at $1222.5, down $17.5; September RBD palm oil liquid was quoted at $1295, down $12.5; and CPO Southern Malaysia September delivery was quoted at 4640 ringgit/ton, down 70 ringgit. The decline in far-month prices was greater than that of near-month prices, indicating that traders are pricing in the inventory pressure of the peak production season in advance. External markets were also bearish: crude oil prices fell by more than $2 per barrel, and talks between Iran and Oman raised market expectations of the Strait of Hormuz reopening, reducing the attractiveness of palm oil as a biodiesel feedstock; the Malaysian ringgit appreciated by 0.52% against the US dollar, further increasing the cost of local currency for foreign buyers. Within the edible oil sector, performance was mixed: Dalian soybean oil rose slightly by 0.13%, Dalian palm oil fell by 0.43%, and CBOT soybean oil fell by 1.17%, with palm oil showing significant weakness.

Shift in trading focus and market outlook

This recent correction indicates that market focus is shifting from supply-side risk premiums to real demand-side pressures. The price break above 5000 ringgit previously reflected concerns about long-term supply, but continued weakness in August exports and a temporary shift in Indian buying towards soybean oil have temporarily given demand a dominant role. The key observation point in the coming week will be whether August's export decline can narrow. If the monthly export decline remains in double digits, while September production rebounds month-on-month, the inflection point for Malaysian palm oil inventories may arrive as early as the end of August or the beginning of September, earlier than the previously expected fourth quarter. Furthermore, the Malaysian Palm Oil Board's (MPOB) monthly production and inventory estimates, the pre-Diwali stockpiling pace of major importing countries, and the oil market's struggle surrounding the Strait of Hormuz will all influence palm oil pricing in stages.

Frequently Asked Questions

Q: What was the decline in Malaysian palm oil exports from August 1st to 25th? A: According to AmSpec Agri data, exports from August 1st to 25th totaled 1.0082 million tons, a decrease of 11.4% compared to 1.1376 million tons in the same period of July. Another agency, ITS, estimates the decline at 20%. Q: Why did palm oil prices fall rapidly after breaking through 5000 ringgit? A: After five consecutive days of gains totaling 6.54%, profit-taking pressure emerged. Simultaneously, weak August export data, lower prices for soybean oil at Indian ports compared to palm oil, falling crude oil prices, and the appreciation of the ringgit all contributed to the downward pressure. Demand concerns temporarily outweighed supply risk premiums. Q: Which export components dragged down the market the most? A: RBD palm oil exports decreased by approximately 129,700 tons month-on-month, a drop of over 44%; PFAD exports decreased by approximately 50%; and CPO exports decreased by approximately 15.3%. Stearin and palm kernel oil exports bucked the trend and increased, but this was insufficient to offset the decline in edible products. Q: What are analysts' assessments of future inventory levels? A: Paramalingam Supramaniam, Director of Pelindung Bestari, believes that inventories will rise if demand does not recover significantly, especially during the peak production season in September and October. The larger decline in spot prices for longer-dated months also reflects this expectation. Q: What data or events should be closely watched going forward? A: Key areas to watch include whether August's export data can narrow the decline, the Malaysian Palm Oil Board's monthly production and inventory figures, Diwali stockpiling in India, and the impact of the crude oil market and the situation in the Strait of Hormuz on biodiesel demand expectations.