On Monday (October 26), the benchmark January palm oil contract on the Malaysian Derivatives Exchange closed down 25 ringgit, or 0.52%, at 4,793 ringgit per tonne, equivalent to US$1,173.60 per tonne. The market opened lower, dragged down by weakness in Dalian palm oil and Chicago soybean oil, as well as a decline in crude oil prices. Meanwhile, the lack of confirmation regarding Malaysia's proposed export tax exemption caused the market to erode the previously established news premium. Anilkumar Bagani, head of research at Sunvin Group, stated that the weakness in energy prices and related vegetable oil futures led to the lower opening, but the main catalyst was the lack of confirmation regarding the export tax exemption, with Malaysian palm oil futures erasing the premium brought by policy expectations. This assessment is consistent with the market performance that day: although export data was strong, short-term pricing power still lies in the hands of policy confirmation and external trends in edible oils and energy.

Market Recap: Competitive Edible Oils and Crude Oil Act as a Double Drag

On the same day, the main soybean oil contract on the Dalian Commodity Exchange rose 0.13%, while the palm oil contract fell 0.52%; soybean oil on the Chicago Board of Trade fell 0.43%. Palm oil is competing with other vegetable oils for global market share, and the weakness of competitors directly pressured Malaysian palm oil. Regarding crude oil, prices retreated after rising to a near six-month high last week. Easing geopolitical expectations cooled risk premiums, but continued attacks on major oil-producing country Saudi Arabia kept investors wary. Weaker crude oil prices reduce the economic viability of palm oil as a biodiesel feedstock, weakening biodiesel demand expectations. Consequently, Malaysian palm oil futures were under pressure at the open and failed to recover losses by the close.

Strong export data failed to support prices.

Shipping survey agencies estimate that Malaysian palm oil product exports increased by 46.9% to 67.7% from October 1st to 25th compared to the previous period. This increase indicates a significant improvement in demand, which should have provided support. However, prices fell instead of rising because the market's focus has shifted from actual exports to the realization of policy expectations. If export tax exemptions are confirmed, they will change export costs and the competitive landscape; before confirmation, bulls lack new drivers, and the previously priced-in news premium has become a target for profit-taking. This indicates that the market's current focus is shifting from the supply side and actual exports to policy implementation and external markets. Strong exports provide more downside support than an immediate price increase.

Policy Expectations and External Markets: News Premium Reversal

Bagani's viewpoint highlights the core contradiction: the lack of confirmation regarding Malaysia's proposed export tax exemption has led the market to erase the related news premium. Before the policy is implemented, prices are highly sensitive to news. If confirmation is subsequently obtained, the market may reassess export competitiveness; if delays continue, the pressure to revive the premium remains. Simultaneous pressure from external markets, with Dalian palm oil falling 0.52% and Chicago soybean oil falling 0.43%, and crude oil retreating from its highs, all weakened the upward momentum of palm oil. Therefore, the current decline is not due to weakening exports, but rather a result of the combined effects of policy uncertainty and weakness in external edible and energy markets.

Exchange Rates and Biodiesel: Slight Support Unlikely to Change Short-Term Weakness

The ringgit depreciated by 0.05% against the US dollar, making ringgit-denominated palm oil slightly cheaper for buyers holding foreign currency, providing minor support. However, the limited exchange rate fluctuations were insufficient to offset the impact of falling crude oil prices and weakening competing edible oils. The decline in crude oil prices reduced the attractiveness of palm oil as a biodiesel feedstock, leading to weaker biodiesel demand expectations. The exchange rate's positive impact is inversely related to the energy sector's negative impact, with the latter currently having a greater marginal effect on the market.

Market Outlook: Policy Confirmation and Export Continuity

In the coming week, the market will focus on whether Malaysia's export tax exemption is confirmed, whether exports for the entire month of October can maintain the strong performance seen from October 1st to 25th, the direction of crude oil prices, and the ringgit exchange rate. If the exemption is confirmed, policy uncertainty will decrease, and the market may re-trade exports and inventories; if not confirmed, the news premium may continue to be priced in. The divergence between strong exports and falling prices reminds traders that short-term prices are driven by expectations and external markets, and for export data to translate into market momentum, policy implementation is still needed.

Frequently Asked Questions

1. What were the main reasons for the decline in Malaysian palm oil futures on October 26?

On October 26, the benchmark January contract closed down 0.52% at 4,793 ringgit per tonne, dragged down by weakness in Dalian palm oil and Chicago soybean oil and a decline in crude oil prices. Meanwhile, the market gave back the news premium as the Malaysian export tax exemption was not confirmed.

2. Malaysia's export data for October 1-25 was strong, so why did it not drive up prices?

Exports rose 46.9% month-on-month to 67.7%, reflecting improved demand, but the short-term trading focus is on policy confirmation and the trends of external edible oils and energy. Before the export tax exemption is implemented, strong exports will provide more downside support than immediately push up prices.

3. What are the core viewpoints of analysts from well-known institutions?

Anilkumar Bagani of Sunvin Group believes that the gap down in futures prices was driven by weakness in energy and related vegetable oils, but the main catalyst was the lack of confirmation regarding export tax exemptions, and Malaysian palm oil futures are erasing the previous news premium.

4. How do crude oil and competing oil products affect palm oil?

Palm oil competes with soybean oil and other vegetable oils for global market share, and a decline in competing products will drag down Malaysian palm oil prices; a weakening crude oil market will reduce the economic viability of palm oil as a feedstock for biodiesel, thereby weakening biodiesel demand expectations.

5. What key variables should the market pay attention to going forward?

Pay attention to whether the Malaysian export tax exemption is confirmed, whether exports can maintain the strong performance from October 1st to 25th, the direction of crude oil prices, and the changes in the ringgit exchange rate. These variables will affect whether the policy premium correction has ended and whether export support can be transformed into market momentum.