Palm Oil Stabilises as Rising Stocks and Weak Exports Cap the Recovery

Malaysian palm oil futures are stabilising after recent losses, with bargain hunters returning following the market’s decline to its lowest level since mid-July. However, the recovery remains fragile as prices continue to trade below MYR 4,500 per tonne, with rising production, elevated inventories and weaker exports keeping the supply-demand balance under pressure.

September shipment estimates point to a significant slowdown in export demand, while expectations that Malaysian palm oil inventories could exceed three million tonnes are limiting the potential for a sustained rally.

At the same time, Chicago soybean oil has edged higher, providing some support to the vegetable-oil complex. Lower crude oil prices, however, are reducing the attractiveness of palm oil as a biodiesel feedstock and adding another headwind to prices.

Market Snapshot

Palm Oil Attempts to Stabilise

Palm oil prices are showing signs of stabilisation after the recent decline, with lower prices attracting bargain hunters.

However, the recovery remains limited while futures remain below MYR 4,500 per tonne. The market continues to face evidence of increasing physical availability, meaning buyers have little incentive to chase prices aggressively higher.

The immediate question is whether bargain hunting can develop into sustained demand or whether rising inventories will continue to cap rallies.

Rising Production Increases Supply Pressure

Production is becoming an increasingly important bearish factor for Malaysian palm oil.

Seasonal production increases have contributed to a larger supply base at a time when exports are losing momentum. If production remains strong while international buying remains subdued, Malaysian inventories could move above three million tonnes.

Elevated stocks would provide a substantial buffer against short-term supply disruptions and make it more difficult for futures to sustain a significant premium.

September Exports Show Clear Demand Weakness

Export demand remains one of the market’s most important concerns.

Cargo surveyors estimate that September shipments declined between 17.1% and 28.8% month-on-month, depending on the survey.

The scale of the decline suggests that higher availability is not currently being matched by sufficient international demand.

For the market to establish a stronger recovery, export flows will need to improve. A continuation of weak shipments would increase the probability that inventories remain elevated through the coming months.

India Remains an Important Demand Market

India remains a key variable for the palm oil outlook.

Palm oil imports are expected to remain relatively steady during the 2026/27 season following a reduction in import duties. Lower edible-oil tariffs ahead of the festive period could also encourage near-term buying.

This provides a potential source of support for Malaysian prices.

However, the strength of Indian demand will need to be sufficient to offset weaker exports elsewhere and absorb a larger Malaysian supply base before the broader market balance becomes significantly tighter.

Soybean Oil Provides Some Support

Chicago soybean oil prices have edged higher, providing some support to palm oil through competition within the global vegetable-oil complex.

The relative pricing between palm oil, soybean oil and other edible oils remains important because large international buyers can switch between products depending on price and availability.

A sustained increase in soybean oil could therefore improve palm oil’s competitive position, particularly if Malaysian prices remain near the lower end of the expected trading range.

China Markets Provide Limited Guidance

Dalian commodity markets are closed during China’s Golden Week, temporarily reducing an important source of price signals for the Asian vegetable-oil complex.

Once Chinese markets reopen, palm oil traders will be watching soybean oil and palm oil pricing closely for signs of renewed demand or further pressure.

China remains an important participant in global vegetable-oil markets, meaning changes in its import demand and domestic crushing economics can have a significant influence on regional prices.

Crude Oil Weakness Limits Biodiesel Support

Lower crude oil prices are creating another headwind for palm oil.

The recent G7 decision to release strategic oil stocks has contributed to weaker crude prices, reducing the relative attractiveness of vegetable oils as biodiesel feedstocks.

Palm oil prices often receive support when petroleum markets strengthen because higher fossil-fuel prices can improve the economics of biofuel blending.

The opposite is also true. If crude oil remains under pressure, palm oil’s energy-related demand component could weaken.

El Niño Provides a Longer-Term Supply Risk

The medium-term outlook is more complicated because El Niño-related weather risks could affect production next year.

Dryer conditions associated with El Niño can negatively affect palm yields and production if the weather pattern becomes sufficiently persistent.

This creates a potential source of support beyond the immediate inventory and export cycle. However, the market is currently being driven more strongly by existing stocks and weak exports than by next year’s potential weather risks.

Bullish Scenario

Palm oil could regain upward momentum if:

• Export demand improves significantly.
• Indian buying accelerates ahead of the festive season.
• Malaysian production begins to moderate.
• Inventory growth slows.
• Soybean oil strengthens.
• Crude oil prices recover.
• El Niño increases concern over future palm production.

A sustained move above MYR 4,500 would be an important first signal that the market is regaining momentum.

A move toward the MYR 4,800–5,000 region would then become increasingly possible if the physical supply-demand balance tightens.

Bearish Scenario

The downside case remains relevant if:

• Malaysian production continues increasing.
• Inventories move above three million tonnes.
• Export shipments remain weak.
• Indian demand fails to accelerate.
• Crude oil prices remain subdued.
• Soybean oil loses its recent support.
• Biofuel demand weakens.

A failure to reclaim MYR 4,500 would leave the market vulnerable to renewed selling pressure, particularly if inventories continue to build.

Palm Oil Price Outlook

The current market structure suggests a period of consolidation may develop around the lower end of the recent trading range.

Analyst expectations place palm oil broadly between MYR 4,500 and MYR 5,000 per tonne through December, with elevated inventories expected to limit the upside.

The immediate technical and psychological challenge is the MYR 4,500 level. A sustained recovery above it would improve sentiment, while continued trading below the level would indicate that sellers remain in control.

Supply Outlook

The near-term supply outlook remains comfortable.

Higher Malaysian production and the possibility of inventories exceeding three million tonnes suggest that physical availability will remain an important constraint on prices.

The longer-term picture is less certain. El Niño-related weather risks could reduce yields and tighten the market during the next production cycle, but those risks are currently being offset by ample near-term stocks.

Demand Outlook

Demand is mixed.

Indian imports provide an important source of potential support, particularly with lower edible-oil tariffs potentially encouraging purchases ahead of the festive season.

However, September export weakness highlights the difficulty of absorbing current production. Palm oil will also need to remain competitively priced against soybean oil and other vegetable oils to attract additional international demand.

Crude oil prices represent another variable because weaker petroleum markets reduce the incentive to use palm oil for biodiesel.

Louis Roche Analysis

Palm oil is currently caught between two opposing forces.

The short-term fundamentals remain challenging: production is increasing, inventories could exceed three million tonnes and September exports have fallen sharply. Together, these factors make it difficult for prices to establish a sustained recovery above MYR 4,500.

However, the longer-term outlook is less bearish.

Indian demand could provide support as the festive season approaches, while lower prices may encourage additional bargain hunting. Soybean oil is also providing some support to the broader vegetable-oil complex.

The biggest potential change in the balance comes from weather. If El Niño develops into a significant production threat, the market could begin pricing tighter supply for the next production cycle.

For now, however, the market is likely to remain driven by physical availability. Until exports improve or production begins to moderate, elevated inventories should continue to cap rallies.

Coming Sessions

Palm oil markets will focus on:

• Malaysian production data
• Inventory estimates
• Export shipment surveys
• Indian import demand
• Chinese vegetable-oil demand after the holiday
• Chicago soybean oil prices
• Crude oil movements
• Biodiesel economics
• El Niño weather developments
• Price action around MYR 4,500

The key near-term question is whether bargain hunting can develop into genuine demand. If exports recover while inventory growth slows, palm oil could move back toward the upper end of its expected range. If stocks continue to rise and exports remain weak, the market may struggle to sustain rallies.

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Market analysis prepared for Today Markets. For informational purposes only and not intended as investment, trading, financial or commodity advice.

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