On Thursday (September 24), palm oil futures on the Malaysian BMD exchange stabilized after four consecutive days of decline. The benchmark December contract FCPOc3 closed at 4,771 ringgit (approximately US$1,168) per tonne, a slight increase of 3 ringgit, or 0.06%, from the previous trading day; however, the contract had fallen by a cumulative 3.4% over the previous four trading days. The market exhibited a typical stalemate: the relatively strong performance of Dalian edible oils and the rebound in crude oil prices supported the downside, while Malaysian inventory accumulation and weak Indian purchases suppressed the upside, resulting in a draw at the closing price.

Dalian and crude oil: Two supporting forces

The stabilization that day was not due to a single force. The main soybean oil contract on the Dalian Commodity Exchange rose 0.39%, and the main palm oil contract rose 0.68%, anchoring a relatively strong bottom for the global vegetable oil market. Palm oil and soybean oil are substitutes for each other, competing for global vegetable oil market share; the strength in Dalian naturally radiated to the Malaysian market. Meanwhile, the crude oil market rebounded by more than 2% due to little progress in US-Iran diplomatic negotiations, coupled with market uncertainty regarding potential diesel export restrictions , significantly enhancing the attractiveness of palm oil as a biodiesel feedstock . The ringgit weakened by 0.17% against the US dollar, also marginally reducing the purchasing costs for buyers settling in US dollars. In contrast, the main soybean oil contract on the Chicago Board of Trade fell only slightly by 0.03%, remaining within a narrow range. A well-known institution quoted David Ng, a specialist trader at Kuala Lumpur-based Iceberg X, as saying that crude palm oil futures trading was cautious, with sentiment still suppressed by the recent overall weakness in the crude oil and vegetable oil markets, although the relatively strong performance of Dalian futures provided some support. This assessment accurately captures the current market sentiment—the bulls and bears are locked in a tug-of-war on the charts, with neither side able to gain the upper hand easily.

Inventory and Demand: The Real Pressure Hanging Over Our Heads

Beyond the supporting forces, downward pressure is equally clear. Industry officials told well-known institutions that the continued rise in Malaysian inventories and the slow pace of procurement by India, the world's largest importer, are jointly putting pressure on the market, while the effects of El Niño have not yet truly translated into production. In other words, the "weather premium" on the supply side has failed to materialize, instead causing traders to focus more on quantifiable inventory data rather than distant and uncertain weather disturbances. This also explains why the rebound in this round of decline has been so weak before the negative factors have been fully priced in.

India's tariff reduction: a marginal benefit before the festivals

There is a noteworthy marginal change in policy. On Wednesday evening, the Indian government announced a reduction in basic import tariffs on crude and refined edible oils (including palm oil, soybean oil, and sunflower oil), aiming to lower domestic edible oil prices before the peak festive season . This measure is expected to improve India's import capacity in the medium to long term, injecting some flexibility into demand, and is one of the few policy variables that could reverse the current bearish sentiment.

Market Outlook: Directional Choice Amidst the Battle Between Bulls and Bears

Looking at the current situation, the short-term trend of palm oil depends on the interplay of two forces: on one hand, the cost support from the relatively strong performance of Dalian edible oils and the rebound in crude oil prices; on the other hand, the real pressure from Malaysian inventory accumulation and weak Indian purchasing. For the market to regain upward momentum, it may require increased restocking in India before the holidays, or a substantial disruption to Southeast Asian production due to El Niño. Conversely, if Dalian edible oils weaken and crude oil's upward momentum falters, downward pressure will reappear. This mixed state of bullish and bearish factors suggests that the short-term market is likely to remain volatile at high levels, with the direction still awaiting market confirmation.

Frequently Asked Questions

Question 1: Does the "flat" close for Malaysian palm oil indicate a market bottom? Answer: The December contract only rose slightly by 0.06% on the day, after a cumulative drop of 3.4% over the previous four trading days. The flat close is more of a temporary equilibrium after a tug-of-war between bulls and bears; it's neither a clear starting point for a rebound nor an acceleration of the decline. The direction still needs confirmation from subsequent inventory and purchasing data and should not be directly interpreted as a bottoming signal. Question 2: Why did Dalian edible oils act as a support level? Answer: Palm oil and soybean oil are interchangeable edible oils, competing for global vegetable oil market share. Dalian soybean oil and palm oil rose by 0.39% and 0.68% respectively, raising the relative bottom of the global vegetable oil sector, thus indirectly supporting Malaysian palm oil prices. Question 3: Why is rising crude oil bullish for palm oil? Answer: Palm oil is an important raw material for biodiesel. Stronger crude oil prices improve the cost-effectiveness of biodiesel relative to fossil fuels, enhancing demand expectations for palm oil, thereby providing cost support for palm oil. Question 4: What is the impact of India's import tariff reduction? A: India lowered basic import tariffs on crude and refined oil products ahead of the festive season, aiming to lower domestic edible oil prices. This measure is expected to boost India's import capacity and improve demand in the medium to long term, and is one of the few policy variables that could reverse the current bearish sentiment. Question 5: Why hasn't El Niño become a bullish reason yet? A: Industry officials point out that the impact of El Niño on production has not yet materialized, meaning the market's expected "weather premium" has not materialized. Traders are therefore more focused on the immediate accumulation of Malaysian inventories and weak Indian purchasing, rather than long-term supply uncertainties.