On Friday (September 25), the most active palm oil futures contract on the Bursa Malaysia Derivatives Exchange—for December delivery—closed down 99 ringgit, or 2.07%, at 4,673 ringgit per tonne (approximately US$1,148), marking its lowest closing price in over seven weeks since August 3. The contract fell a cumulative 4.59% for the week, a significant reversal from the previous week's 1.74% gain. This price movement is driven by concerns about inventory levels stemming from higher-than-expected production and persistently weak exports, which are now dominating futures pricing.

Exports plummeted by 15.1%, with a significant reduction in volume from the EU.

Data from shipping surveyor ITS (Intertek) shows that Malaysian palm oil exports from September 1-25 fell 15.1% year-on-year to 887,557 tons, compared to 1,045,204 tons in the same period of August. By market, exports to the EU plummeted from 284,061 tons to 184,372 tons, with only exports to India and the subcontinent showing a slight increase to 199,630 tons. This collective decline in exports, coupled with higher-than-expected production, has raised widespread concerns within the industry that Malaysian palm oil inventories may exceed 3.1 million tons by the end of September.

India's tax cuts could not withstand the negative impact of rising inventory levels.

The Indian government lowered basic import tariffs on crude and refined edible oils on Wednesday (September 23, Beijing time), affecting palm oil, soybean oil, and sunflower oil, aiming to suppress prices during the peak consumption season. However, Anilkumar Bagani, head of research at Mumbai-based vegetable oil brokerage Sunvin Group, bluntly stated that despite the tariff reduction, crude palm oil futures remain bearish – higher-than-expected production and weak exports could push end-September inventories to over 3.1 million tons, with inventory pressure outweighing the marginal benefit of the tariff cut.

Institutional view: Support at 4600, resistance at 4750

David Ng, a trader at Iceberg X in Kuala Lumpur, pointed out that palm oil futures prices closed lower mainly due to weakness in soybean oil and crude oil. The uses of various vegetable oils are similar, and their prices often move in tandem. The strengthening ringgit added further pressure. He expects prices to find support at 4,600 ringgit per tonne, with resistance at 4,750 ringgit. Industry insiders generally believe that prices will remain under pressure in the short term – rising Malaysian inventories and slowing purchases from India, the world's largest importer, are jointly suppressing the market, while the impact of El Niño on supply has not yet materialized.

External factors: Crude oil and soybean oil weakened, putting pressure on the Malaysian Ringgit.

Crude oil prices fell this week as the market weighed the possibility of a US-Iran truce while also worrying that Houthi attacks on Saudi Arabia could disrupt key Middle Eastern supplies. Weaker crude oil prices reduced the attractiveness of palm oil as a biodiesel feedstock; Chicago soybean oil futures fell 1.13% intraday, while the Dalian Commodity Exchange was closed for a holiday. Palm oil competes with other vegetable oils for global market share, and their prices move in tandem. Meanwhile, the ringgit strengthened 0.34% against the US dollar, increasing procurement costs for buyers using foreign currencies and further dampening buying interest.

Later focus: The interplay between peak inventory levels and El Niño

Until the expectation of inventory accumulation is disproven, Malaysian palm oil is likely to maintain a weak and volatile trend. Three aspects need close monitoring: First, whether the official inventory at the end of September can confirm the concerns about 3.1 million tons; second, the purchasing pace during India's peak season—whether tax cuts can truly boost demand or be offset by high inventory and a stronger ringgit; and third, external guidance for crude oil and soybean oil. If the effects of El Niño gradually emerge in the fourth quarter, a tightening supply may provide a turning point for prices, at which point the trend logic may shift from "inventory accumulation suppression" to "supply tightening." However, before substantial changes occur in weather and inventory data in producing regions, this remains a potential long-term bullish factor and does not constitute a directional divergence from the current downward trend.

Frequently Asked Questions

Q1: Why did palm oil futures still fall after India lowered its edible oil tariffs? The tariff reduction should have stimulated purchases, but the market was more focused on the inventory pressure brought about by the sharp drop in Malaysian exports and higher-than-expected production. Institutions believe that inventories may exceed 3.1 million tons by the end of September, and the negative impact of inventory accumulation outweighed the marginal positive effect of the tariff reduction, hence the futures market remains bearish. Q2: Why did exports drop sharply by 15.1% from September 1st to 25th? Mainly due to a significant contraction in EU demand, from 284,000 tons in the same period of August to 184,000 tons; exports to China also decreased from 95,000 tons to 55,000 tons. Only exports from India and the subcontinent saw a slight increase. Overall weak exports directly fueled concerns about inventory accumulation. Q3: What does the expected inventory of 3.1 million tons mean? This reflects the market's concern about the level of Malaysian palm oil inventories at the end of September. If inventories are significantly higher than historical averages for the same period, it means ample supply, which will suppress the rebound potential of futures prices and is the core driver of this round of decline. Q4: Why is the strengthening of the ringgit bearish for palm oil? Palm oil is priced in the ringgit. The ringgit strengthened by 0.34% against the US dollar, increasing procurement costs for buyers using foreign currencies, weakening demand, and thus suppressing prices. Q5: What variables should we pay attention to in the future? In the short term, watch whether the official inventory at the end of September confirms concerns about 3.1 million tons, and the actual pace of Indian peak season procurement; externally, watch for guidance from crude oil and soybean oil. In the medium term, pay attention to the impact of El Niño on supply in producing regions. If supply tightens in the fourth quarter, the price trend may shift from inventory accumulation to supply tightening.