On Tuesday (September 22), palm oil futures on the Malaysian Derivatives Exchange reversed intraday gains, with the benchmark December contract closing down 47 ringgit, or 0.97%, at 4,810 ringgit per tonne, marking its lowest closing price since August 14. The core logic behind the market pressure is clear: on one hand, there are rising expectations of inventory rebuilding, and on the other hand, there is continued weak export data, both of which have suppressed bullish sentiment.

Sluggish exports and strong production combined to make inventory pressure the main theme of trading.

The latest estimates from shipping survey agencies show that Malaysian palm oil product exports fell 12.8% to 24.7% month-on-month from September 1st to 20th. This decline means that, although September is not yet over, exports are clearly unable to absorb current production. Meanwhile, Abdul Hameed, Sales Director of Manzoor Trading in Pakistan , pointed out that the combination of weak exports, strong production, and rising inventories is putting continuous pressure on market sentiment. He further stated that the market expects Malaysian palm oil inventories to exceed 3 million tons by the end of September, which has brought further selling pressure. Sandeep Singh, Director of The Farm Trade, a Kuala Lumpur-based consulting and trading firm, gave a similar assessment. He stated that Malaysian ending inventories are expected to exceed 3 million tons, and may even approach historical highs, while demand remains weak, and ample spot supply continues to suppress prices. Singh also cautioned that the risks associated with El Niño will continue until the middle of next year, a variable that needs to be monitored in the medium term. However, he also emphasized that the short-term market focus is clearly on the loose supply and demand situation in the immediate market.

A weakening energy market eroded support for biodiesel, while competing edible oils showed divergent trends.

Lower crude oil prices further diminished palm oil's appeal as a biodiesel feedstock. Reports that Iran indicated it could reopen the Strait of Hormuz within seven days if the US took initial steps to ease military pressure eased market concerns about disruptions to the key shipping route, causing oil prices to fall. Abdul Hameed commented that weaker energy prices reduced support from the overall commodity market, leading to a lower close for palm oil. In the competing edible oils market, the most active soybean oil contract on the Dalian Commodity Exchange rose 0.54%, while palm oil contracts fell 0.49%; soybean oil prices on the Chicago Board of Trade fell 1.32%. Palm oil competes with other edible oils for global vegetable oil market share, and its price movements typically follow those of related edible oils. However, the significant divergence between domestic and international markets on that day reflected the weak fundamentals of Malaysian palm oil itself.

Medium- to long-term supporting factors remain, but the short-term trading focus remains on the supply side.

The Malaysian Palm Oil Council (MBOC) projects that crude palm oil prices will remain above US$1,154 per tonne in October and for the remainder of the year, supported by weather uncertainty and a favorable energy market environment. This assessment contrasts with the current weakness in futures prices, indicating that the market's current focus is on immediate inventory pressure rather than medium- to long-term supply risks. In other words, traders are using the reality of short-term easing to hedge against the uncertainty of long-term weather premiums. Notably, Sandeep Singh mentioned that this week's leaders' meeting provided support for the broader agricultural market, particularly soybean oil. However, this macro sentiment has not effectively translated into Malaysian palm oil futures, suggesting that the supply and demand imbalance within the palm oil market is more pronounced. In the coming week, traders should closely monitor the MBOC's upcoming monthly inventory data and the revised export figures for September. These two figures will be key indicators for verifying the 3 million tonne inventory expectation. If inventories confirm a breach of this threshold, the market may further test previous support levels; conversely, if exports recover more than expected, market sentiment may see a temporary easing.

Frequently Asked Questions

Q: Why did palm oil futures prices fall to a five-week low? A: Mainly because the market expects Malaysian palm oil stocks to exceed 3 million tons by the end of September, while exports in the first 20 days of September fell 12.8% to 24.7% month-on-month. The combination of ample supply and weak demand is putting downward pressure on prices. Q: What impact does the decline in crude oil prices have on palm oil? A: Weaker crude oil prices have reduced the attractiveness of palm oil as a biodiesel feedstock, decreasing support from the energy market and thus dragging down palm oil prices. Q: What are analysts' views on the current fundamentals? A: Abdul Hameed of Manzoor Trading and Sandeep Singh of The Farm Trade both believe that weak exports, strong production, and rising inventories are the main negative factors, with continued weak demand. Q: What are the Malaysian Palm Oil Council's forecasts for future prices? A: The council expects crude palm oil prices to remain above US$1154 per ton in October and for the remainder of the year, supported by weather uncertainty and the energy market. Q: What should traders pay attention to next? A: We need to pay close attention to the Malaysian Palm Oil Board's monthly inventory data and the revised export figures for September to verify whether the inventory has indeed exceeded 3 million tons, which will determine the short-term market direction.