Malaysian palm oil futures closed up 1% on Monday (October 12), with the benchmark December contract (FCPOc3) settling at 4,638 ringgit per tonne, up 46 ringgit, or approximately US$1,136.49. The contract had fallen 1.48% in the previous trading day. The rebound was driven by stronger palm oil prices in Dalian and robust export data, but record-high inventory levels at the end of September limited gains. On the Dalian market, the most active palm oil contract rose slightly by 0.23%, while soybean oil contracts fell slightly by 0.3%; Chicago soybean oil rose 0.41%.

Supply and demand: Record production and export recovery coexist.

The core contradiction in the fundamentals lies in record supply. Malaysian palm oil stocks surged to 3.51 million tons in September, exceeding market expectations and reaching a level previously considered impossible. Production increased for the fourth consecutive month, rising 16.48% month-on-month to 2.12 million tons in September, surpassing the previous high in August 2015; meanwhile, exports declined for the second consecutive month, decreasing by 12.13% month-on-month to 1.12 million tons.

However, new positive signs have emerged on the demand side: shipping survey agencies estimate that Malaysian palm oil product exports rebounded by 33.5% to 37.7% month-on-month from October 1st to 10th. This change is the most noteworthy marginal improvement recently—if strong exports continue, the rate of inventory accumulation is expected to slow, and inventory pressure can be partially offset. A Kuala Lumpur trader pointed out that crude oil and palm oil prices are supported by the strengthening price spread between Dalian and China's palm oil markets, but market expectations of rising palm oil ending inventories have limited upside potential.

External variables: Multiple constraints from exchange rates and crude oil prices

External markets also influenced the market. The Malaysian ringgit appreciated by 0.05% against the US dollar, slightly increasing procurement costs for dollar-denominated buyers. Crude oil prices fluctuated widely—the market digested the supply tightening signals following the attack on major Saudi facilities, while also weighing the potential supply from increased Russian diesel exports. Logically, stronger crude oil prices would enhance the attractiveness of palm oil as a biodiesel feedstock, providing a floor for palm oil prices; conversely, if oil prices weaken, the demand logic for biodiesel would be weakened. Considering the competition between palm oil and other edible oils such as soybean oil for global market share, the future direction of the Dalian and Chicago edible oil sectors needs to be closely monitored.

In summary, the current market is in a tug-of-war between a clear supply ceiling and a marginal recovery in demand. Short-term export pace and the Malaysian Ringgit's exchange rate are the most volatile variables in terms of price elasticity, while the timing of the inventory inflection point will determine whether the rebound can evolve into a sustained trend.

Frequently Asked Questions

Q: Why did prices still rise despite record-high inventory levels in September?

A: The rebound was mainly driven by the recovery in export data and the strengthening of palm oil prices in Dalian, which is a recovery in demand expectations; high inventory only limited the increase and did not reverse the short-term bullish sentiment.

Q: What does the 37% rebound in exports in October mean?

A: This is a key signal of marginal improvement in supply and demand. If this trend continues throughout the month, the month-on-month increase in inventory in October will narrow significantly, potentially marking a turning point for price stabilization.

Q: Why has production increased for four consecutive months?

A: The surge in palm oil production is mainly due to the peak production season and favorable weather conditions in the previous period, which led to a 16.48% increase in output compared to the previous period.

Q: What impact does the appreciation of the ringgit have on the market?

A: The strengthening of the Malaysian Ringgit makes palm oil more expensive for foreign currency buyers, which dampens some purchasing intentions and is a hidden obstacle to price increases.

Q: What is the logic behind the relationship between crude oil and palm oil?

A: The higher the oil price, the stronger the economic viability of palm oil as a feedstock for biodiesel, and the more obvious its role in supporting demand; a weaker oil price will weaken this support.