Crude palm oil (CPO) futures held near a three-month high on Thursday, supported by a confluence of supply risks and robust biodiesel demand signals. The benchmark contract on Bursa Malaysia Derivatives remained elevated after climbing in the previous session, as traders weighed Indonesia’s B50 biodiesel rollout against tightening supply expectations.
Biofuel Policy Drives Sentiment
Indonesia’s B50 biodiesel mandate, launched earlier this month, continues to underpin the market. The policy is expected to absorb additional palm oil volumes, tightening global availability. The Reserve Bank of India flagged biofuel production as a key driver of elevated edible oil prices, citing Indonesia’s mandate in a recent report. The RBI’s commentary reinforces the structural demand shift from energy policy, which analysts say could keep prices elevated even as other vegetable oils ease.
Supply Squeeze and Price Outlook
Malaysian palm oil futures have rallied on concerns over a supply squeeze, with production in the world’s second-largest producer facing seasonal headwinds. The Malaysian Palm Oil Council projected CPO prices to stay in a RM4,400–RM4,650 per tonne range for August, reflecting a market caught between tight supply and cautious demand. Meanwhile, rival edible oils and crude oil have firmed, providing additional support to palm oil. The Middle East conflict continues to inject volatility into crude markets, strengthening the correlation between vegetable oil and energy prices.
India’s Import Surge and Duty Dynamics
India, the world’s largest vegetable oil importer, is expected to see edible oil imports surge from July through October as buyers stock up ahead of the festival season. This seasonal demand spike comes at a time when global supplies are already stretched. However, concerns over duty-free imports from Nepal are creating friction for domestic Indian producers. Experts have urged India to make import duties more flexible to balance the needs of consumers and crushers. The country’s heavy reliance on imports, highlighted by recent geopolitical risks, remains a key vulnerability for the market.
Physical Market Caution
Despite the futures rally, physical market demand remains constrained. Buyers on the spot market are showing limited appetite at current elevated levels, with end-users preferring to draw down inventories rather than chase prices. This divergence between paper and physical markets suggests that the upside may be capped unless fresh supply disruptions emerge.
What to Watch
Buyers should monitor Indonesia’s B50 implementation pace and any further supply-side shocks from weather or geopolitical events. India’s import pace ahead of Diwali will be a key demand indicator, while any shift in crude oil prices could quickly spill over into vegetable oil markets.