On Monday (October 19), palm oil futures on the Malaysian Derivatives Exchange initially rose before declining. The benchmark January contract rose 10 ringgit, or 0.21%, to 4,779 ringgit per tonne in the afternoon session, hitting a more than three-week high. The December contract closed down 3 ringgit at 4,766 ringgit per tonne. Behind the divergence in prices, weaker international crude oil prices and concerns about high Malaysian inventories weighed on near-month contracts, while stronger Dalian vegetable oil prices and expectations of pre-Diwali purchases in India provided support. The previous week, Malaysian palm oil futures rose nearly 4%, marking the second consecutive week of gains, as trading intensified on improved demand and supply disruptions.

Iceberg X trader David Ng stated that palm oil prices fell primarily due to weaker crude oil and concerns about high Malaysian inventories, but were supported by firm Dalian vegetable oil prices and anticipated demand ahead of Diwali in India. He added that improved export demand could buffer further declines, but high domestic inventories may continue to limit a substantial rebound. Another trader in Kuala Lumpur noted that Malaysian palm oil futures opened higher, following Dalian palm oil futures, but high Malaysian inventories could limit upside potential. On the same day, Dalian soybean oil rose 0.62%, and palm oil rose 1.21%; Chicago soybean oil fell 0.13%. Palm oil competes for market share with global vegetable oils, showing a clear correlation. Weaker crude oil prices have reduced the attractiveness of palm oil as a biodiesel feedstock. Malaysian agricultural exports fell 5.7% in September, with shipments of palm oil and palm oil products declining. Technically, renowned technical analyst Wang Tao believes that after the Malaysian palm oil benchmark contract breaks through 4766 ringgit, it may rise into the 4799-4820 ringgit/ton range.

<h2><strong>Logistics bottlenecks in West Kalimantan, Indonesia, become a new supply variable</strong></h2>

The new changes on the supply side are concentrated in West Kalimantan, Indonesia. A persistent drought triggered by a super El Niño has caused the Kapuas River to drop in water levels. This 1,143-kilometer-long river carries approximately 40% of West Kalimantan's palm oil exports. Sandbars have caused barges and tugboats to run aground, and road transport has limited alternatives; truck transport capacity is lower than barge transport and costs about three times as much. West Kalimantan accounts for about 11% of Indonesia's palm oil production, and Indonesia is the world's largest palm oil producer. Aris Supratman, head of GAPKI's West Kalimantan office, said that 13 of the province's 50 crushing plants have been affected by transportation disruptions, representing about half of the province's processing capacity; he estimated that the province's palm oil supply in September decreased by about 11% month-on-month. Crushing plants have had to limit production once their tanks are full.

Specific data further illustrates the extent of the bottleneck. Dian Kurniawan, manager of the Multi Prima Entakai crushing plant, stated that the company's fresh palm oil purchases dropped to 10,000 tons in September, compared to 30,000 tons in July; as of October 1st, crude palm oil inventory stood at 8,200 tons, close to the 8,500-ton tank capacity. Regular barges can ship 2,000 tons in four days, while trucks sometimes only manage 100 tons per day. Smallholder Supendi waited four days in early October without unloading his load. Indra Rustandi, head of APKASINDO West Kalimantan, stated that some smallholders have reduced fertilizer application by up to 70% due to decreased income. Another smallholder, Rahmat Wiyono, said that the purchase price for palm oil bunches was once as low as 2,650 rupiah/kg, lower than the 3,400 rupiah/kg offered by regular crushing plants. The Indonesian Meteorological Agency predicts the rainy season will begin in November, later than the normal October, potentially delaying the recovery of river transport.

<h2><strong>With both production forecasts being lowered and demand expectations remaining, the focus of trading shifts to Q4 supply risks</strong></h2>

GAPKI has lowered its 2026 national palm oil production forecast by 2.9% due to drought slowing fruit bunch ripening. Analysts estimate that Indonesian Borneo's fourth-quarter production may decline by 12% to 15% due to El Niño-related disruptions. This contrasts with the current market pullback: in the short term, the market is more concerned about high Malaysian inventories, weak crude oil, and a decline in September exports, with supply-side bullish factors not yet translating into sustained price increases. However, logistical bottlenecks in West Kalimantan and the downward revision of production forecasts indicate that market focus is shifting from "high Malaysian palm oil inventories" to "Indonesian drought logistics and fourth-quarter production risks." If the rainy season is delayed until November, the slow recovery of Kapuas River transport could perpetuate supply risks and provide a floor for Malaysian palm oil futures; high inventories and weak crude oil will limit the rebound's potential.

In the coming week, traders need to closely monitor high-frequency export data from Malaysia in October, rainfall and the Kapuas River level in Indonesia, the pace of pre-Diwali purchasing in India, and the correlation between crude oil and Dalian vegetable oil prices. These variables will determine whether the supply premium can continue and whether the market can absorb the current inventory pressure.

<h2><strong>Frequently Asked Questions</strong></h2>

Why did Malaysian palm oil futures initially rise before declining on October 19th?

In the afternoon session, prices followed gains in Dalian vegetable oil and anticipated demand ahead of Diwali in India, but weaker crude oil and concerns about high Malaysian inventories weighed on near-month contracts, with the December contract closing lower.

How do logistical bottlenecks in West Kalimantan affect supply?

The water level of the Capuas River has dropped, and river transport accounts for about 40% of the province's output. 13 out of 50 crushing plants have been affected. GAPKI estimates that the province's supply will decrease by about 11% month-on-month in September, as crushing plants have limited production after their tanks are full.

What does GAPKI's downward revision of its production forecast mean?

The national production forecast for 2026 has been lowered by 2.9%, coupled with analysts' estimates that Indonesian Borneo's production will fall by 12% to 15% in the fourth quarter, increasing medium-term supply risks. However, in the short term, high inventory and weak crude oil prices continue to suppress the market.

Does the decline in Malaysian exports in September contradict expectations of Indian demand?

The 5.7% drop in agricultural exports in September is a realized figure, while pre-Diwali purchases in India are a forward-looking expectation; improved exports can buffer the decline, but high inventory levels limit a substantial rebound.

What variables should the market be monitoring in the coming week?

High-frequency export data from Malaysia, rainfall and the Kapuas River level in Indonesia, the pace of Indian procurement, and the correlation between crude oil and Dalian vegetable oil prices will all influence supply premiums and market direction.