Malaysian crude palm oil futures closed near $1,101 per tonne on August 3, down 0.3% from the previous session, tracking weakness in soybean oil and lingering concerns over rising supply. The global benchmark stood at about $1,105, while Indonesia's reference price was set at $1,030 for August, reflecting a slight premium for Malaysian product. The ringgit held near 4.09 per dollar, and the rupiah at 18,053, with the latter's softness supporting Indonesian export competitiveness.
Supply and Stocks
MPOB's June data showed Malaysian CPO production at 1,638,777 tonnes, up 8.1% month-on-month, while closing stocks rose 3.7% to 1,332,697 tonnes. Exports increased 5.7% to 1,198,567 tonnes, but imports surged 135.3% to 103,113 tonnes, partly reflecting arbitrage opportunities. The FFB reference price slipped 1.3% to RM 48.90, signaling some softening in fresh fruit bunch values.
Weather remains a key swing factor. ENSO is in El Niño territory (ONI +1.0), with dry conditions reported in Sarawak and Kalimantan. This raises concerns about future production, though current output is still rising. Market participants are weighing near-term supply gains against potential drought stress later in the year.
Demand and Trade Flows
India, the world's largest edible oil importer, saw June imports drop 30% year-on-year, with palm and soybean oil shipments falling. However, imports are expected to pick up from July through October ahead of festivals, as buyers rebuild inventories. Reports of India seeking sunflower oil alternatives amid Black Sea disruptions could redirect some demand toward palm and other oils. Meanwhile, India's biofuel push, including the RBI's flagging of biofuel-driven edible oil price pressures, adds another layer to demand dynamics.
Indonesia's B50 biodiesel programme, launched in July, continues to underpin long-term palm oil demand for fuel, although crude oil prices around $90 per barrel keep biodiesel economics in check. The wide BOPO spread (palm oil vs gasoil) offers some support, but any sustained drop in crude could weaken that cushion.
Price Outlook
Our model outlook suggests near-term headwinds from rupiah weakness boosting export selling, a slowing Chinese economy, and elevated speculative longs. However, support comes from the wide BOPO spread, El Niño anticipation, and seasonal August firming. Prices are likely to remain rangebound around $1,100, with a slight initial dip on FX concerns before stabilizing.
Takeaway for Buyers
Watch the rupiah and China's demand signals for near-term direction, but keep an eye on El Niño's evolution and India's festival-season buying as key supports. The market appears balanced, with supply increases offset by weather and biodiesel demand risks.