On Thursday (October 15), palm oil futures on the Malaysian Derivatives Exchange (BMD) closed lower, ending a three-day winning streak. The benchmark December contract closed at 4,622 ringgit per tonne, down 78 ringgit, or 1.66%. The main downward pressure came from across-the-board weakness in edible oil futures: the Dalian soybean oil main contract closed down 1.98%, palm oil contracts fell sharply by 3.03%, and Chicago soybean oil also declined by 0.92%. Externally, crude oil prices fell by about 2% on the day, marginally weakening the logic for biodiesel feedstock. It's worth noting that this price drop occurred against a backdrop of remarkably strong export data. Shipping survey agencies estimate that Malaysian palm oil product exports increased by between 43.2% and 58.3% from October 1st to 15th compared to the previous period. The demand side is not the problem; the price decline is more attributable to the transmission of external market sentiment.

Linked logic: Why is palm oil priced differently in the "neighboring" market?

Palm oil competes with soybean and rapeseed oil for market share in the global vegetable oil market, and its price naturally follows that of its competitors. The weakness in Dalian and Chicago markets that day directly outweighed the support from positive export factors. A well-known institution explicitly pointed out in its report that it was the weakness of competing oils in the Dalian and Chicago markets that prevented the strong export forecasts from translating into price increases. Herein lies a discrepancy worth considering for professional traders: exports from producing countries are increasing, while the consumer market for edible oils is plummeting. This combination of "strong fundamentals, weak market" usually indicates that the market is pricing in the future—either concerns about the sustainability of high export rates or pre-emptive trading in the substitution effect brought about by the narrowing soybean-palm oil price gap. The 3.03% drop in Dalian palm oil futures significantly outpaced the Malaysian market, indicating that the source of this round of adjustment lies in the domestic edible oil market, rather than in Southeast Asian producing countries.

Demand and Policy: Several Key Details

Positive signals emerged from India. The Solvent Extractors Association of India (SEA) announced on Thursday that India's palm oil imports in September increased by 4.5% month-on-month to 817,884 tons. As one of the world's largest importers of vegetable oils, India's restocking demand provided real support for destocking in producing countries. On the policy front, some pressure was eased. The Malaysian Palm Oil Board (MPOB) announced on Wednesday that it would lower its November reference price for crude palm oil, while maintaining the export tariff at 10%. Although the reference price reduction does not directly change the tax rate, it lowers buyers' expectations of landed costs, exerting a mild downward pull on prices in producing countries. Exchange rate factors are also significant. The Malaysian Ringgit appreciated by 0.02% against the US dollar on the day, correspondingly increasing the cost of purchasing in US dollar terms. For buyers holding foreign currency, Malaysian palm oil became slightly more expensive.

Crude oil weakens: The logic of biodiesel is easing.

Crude oil prices fell by about 2% on Thursday. Sources from well-known institutions indicated that market expectations of a potential easing of restrictions on Russian "shadow fleet" tankers eased supply concerns; however, attacks on Middle Eastern shipping routes and Ukraine's strikes on Russian energy facilities limited the downside for oil prices. For palm oil, the decline in crude oil prices has a direct meaning: the economics of blending with biodiesel have decreased, thus reducing the attractiveness of palm oil as a biodiesel feedstock. This logic is particularly sensitive under the current price spread structure—when palm oil has a high premium relative to diesel, biodiesel demand will naturally contract, creating a self-imposed constraint on prices. The Malaysian market's failure to withstand external pressure on Thursday was closely related to this transmission chain.

Key focus for the market outlook: the interplay of three variables

In summary, the current palm oil market is a battleground of three forces: increased exports and Indian restocking form the foundation for bullish sentiment, while weakness in Dalian edible oil futures is suppressing near-term pricing, and falling crude oil prices are weakening the biodiesel premium logic. In the short term, the market direction is likely to be driven by sentiment in Dalian futures, with Malaysian futures unlikely to strengthen independently. Looking ahead, several key points deserve close attention: first, the extent to which October's export data is realized; if the high growth continues, inventory pressure in producing countries will be substantially alleviated; second, the stabilization pace of the Dalian edible oil market; if Dalian futures do not stop falling, the rebound in Malaysian futures lacks a anchor; and third, whether geopolitical disturbances in the crude oil market will again push up biodiesel blending yields. It is worth noting that if the biodiesel logic strengthens again, palm oil, currently under pressure due to weak crude oil prices, has room for a logical reversal—this is precisely where short sellers need to be wary.

Frequently Asked Questions

Q: With exports surging nearly 60%, why is palm oil still falling? A: Palm oil pricing follows the overall trend of global vegetable oils. On that day, Dalian soybean oil and palm oil fell by 1.98% and 3.03% respectively. The weakness of competing products was transmitted to the Malaysian market, overshadowing the positive export news. The market is also digesting the uncertainty of whether the high export pace can be sustained. Q: How important is India's import data? A: India's palm oil imports in September reached 817,884 tons, a 4.5% increase month-on-month, providing actual support for destocking in producing countries. As a major importer, India's restocking pace directly affects the credibility of Malaysian export forecasts. Q: What does the reduction in Malaysia's reference price mean? A: The reduction in the November crude palm oil reference price while maintaining the tax rate at 10% means that buyers' expected landed costs have decreased, exerting a mild downward pull on quotations in producing countries, representing a marginal negative policy factor. Q: What is the relationship between crude oil and palm oil? A: Palm oil is an important raw material for biodiesel. After crude oil prices fell by 2%, the economic viability of blending biodiesel decreased, and the industrial demand premium for palm oil narrowed accordingly. This transmission chain has a particularly significant impact within the price spread sensitive range. Q: What signals should we be watching most closely going forward? A: Three: Whether the export growth rate for the entire month of October can continue; when the Dalian edible oil futures market will stabilize; and whether geopolitical disturbances in the crude oil market will again boost biodiesel profitability. Any shift in any of these three factors could change the current weak market trend.