Malaysian palm oil futures fell sharply on Thursday (September 17), with the benchmark contract retreating from a 21-month high. FCPOc3 (December delivery) closed at 4,940 ringgit per tonne (approximately US$1,206.05), down 58 ringgit, or 1.16%, from the previous trading day; it had briefly hit its highest level since December 2024 before pulling back. The backdrop for the price encountering resistance at higher levels is not complicated—continued weak export data in September, rising end-of-month inventory expectations, and widespread declines in competing vegetable oils led investors to take profits at higher levels.

Export contraction coupled with inventory rebound put significant pressure on fundamentals.

Malaysian palm oil exports from September 1st to 15th, according to estimates from two shipping survey agencies, declined by 17.8% to 25.6% compared to the same period last month. This significant drop indicates a marked slowdown in downstream purchasing. Shipping survey data is the most direct leading indicator for the market in recent months, and the continued weakness in exports has directly shaken bullish expectations for inventory reduction in September. Paramalingam Supramaniam, director of Selangor brokerage Pelindung Bestari, stated bluntly: "The fundamentals of palm oil remain suppressed by weak September exports and expectations that month-end inventory may rebound to around 3 million tons." This assessment highlights the core of this round of decline—the previous surge in prices to 21-month highs was mainly driven by optimistic narratives on the supply side, while demand failed to provide corresponding support.

Most of the positive news is based on "expectations," and further policy implementation is still needed.

Supramaniam added that the market still has some support due to two policy expectations: first, India may lower import tariffs on vegetable oils, and second, Indonesia may increase the blending ratio of biodiesel. The former, if implemented, will directly boost import demand in India, the world's largest buyer of vegetable oils; the latter will open up space for domestic palm oil consumption from the demand side. However, it is worth noting that both projects are currently only at the "expectation" level, without official confirmation, representing a typical "buy the rumor" market, and are highly susceptible to reversal if the policies fail to meet expectations.

Weather and fires in production areas: Supply contraction is a potential variable.

The supply side isn't entirely without its concerns. Kalimantan, Indonesia's main palm oil producing region, is facing persistent drought and widespread forest fires, potentially leading to a 12% to 15% decline in palm oil production in the fourth quarter. Kalimantan is the core palm oil growing area in Indonesia, and if production contracts as expected, this will gradually be reflected in export and inventory data in the first quarter of next year. In the short term, this factor hasn't reversed the current expectation of increasing inventories, but it provides the market with room for speculation about a medium-term supply contraction, and also offers relatively solid logical support below current price levels.

Competing oils weakened in tandem with crude oil, dragging down palm oil prices.

Palm oil competes for market share with soybean oil, rapeseed oil, and other vegetable oils in the global market, and their prices are closely linked. On Thursday, the Dalian Commodity Exchange's most active soybean oil contract fell 0.34%, while the palm oil contract dropped 1.06%; soybean oil prices on the Chicago Board of Trade (CBOT) fell 1.02%. The overall decline in competing products weakened palm oil's price advantage. Regarding crude oil, although Brent crude remained above $100 per barrel, news that Saudi Arabia had increased its crude oil supply through Oman eased supply concerns, causing oil prices to continue their decline. Weaker crude oil prices mean lower economic viability for biodiesel feedstocks, and as a major biodiesel feedstock, palm oil's blending appeal is reduced, indirectly putting pressure on the market. Furthermore, the Malaysian ringgit, the currency used to price palm oil, depreciated by 0.33% against the US dollar on the day, theoretically reducing procurement costs for overseas buyers and providing some support for demand, but this effect was overshadowed by weak export data.

Follow-up Focus

In summary, the current market is a tug-of-war between an optimistic supply narrative and weak demand. The short-term direction will likely be driven by export data for the second half of September, the month-end inventory report, and the implementation pace of the two policies from India and Indonesia. If the decline in exports narrows or the policy benefits materialize, prices are expected to regain upward momentum; conversely, if inventories approach 3 million tons as expected, high-level pressure will be further released. Weather developments in producing regions and crude oil price movements will determine the depth of the correction.

Frequently Asked Questions

Q: What is the most direct reason for the recent pullback in palm oil prices from a 21-month high? A: The direct reason is a misalignment between fundamentals and news. Exports in early September fell 17.8% to 25.6% year-on-year, coupled with expectations that month-end inventories might rise to 3 million tons, leaving bulls without a basis to continue pushing prices higher. Simultaneously, soybean oil, palm oil, and CBOT soybean oil all declined, dragging down competing edible oils, leading to profit-taking. Q: Why did prices reach a 21-month high during the day but close down more than 1%? A: This is a typical case of a surge followed by a pullback. The market's optimistic expectations of "low inventories + supply contraction" pushed prices to a high point, but intraday export data and weakness in competing edible oils released bearish signals, creating a contrast. Short-term funds chose to cash in at higher levels, ultimately closing at the day's lows. Q: Why did the expectations of India lowering tariffs and Indonesia increasing blending ratios support prices? A: India is the world's largest importer of vegetable oils. Lowering import tariffs can directly reduce landed costs and stimulate import demand. Indonesia increasing the blending ratio of biodiesel can open up additional channels for palm oil consumption domestically. Both point to demand expansion and are substantial positive factors, but neither has been officially confirmed yet, and whether they will be implemented is a key variable. Q: Kalimantan's production cut of 12% to 15% in the fourth quarter failed to push up the market. Why? A: Because the production cut occurred in the fourth quarter, the corresponding supply contraction will only gradually be reflected in export and inventory data later. In the short term, it cannot offset the current pressure from weak exports and rising inventories. It is more of a potential support for medium-term supply, forming a safety cushion for prices below, rather than an upward momentum at present. Q: What is the logic behind the impact of crude oil prices on palm oil? A: Palm oil is one of the main raw materials for biodiesel. When crude oil prices are high, the economics of biodiesel improve, and the premium space for palm oil as a raw material expands; conversely, weak oil prices (such as the decline triggered by the recent news of increased Saudi supply) will weaken the demand attractiveness of biodiesel for palm oil, thereby indirectly dragging down palm oil prices.