Malaysian crude palm oil futures were little changed on Wednesday, with the benchmark hovering near $1,100/MT (RM 4,507/MT) as the market balanced supportive demand signals against a build in inventories and dry weather across key growing regions.
Supply: Stocks and Production Rise
According to the Malaysian Palm Oil Board's June data, CPO production climbed 8.1% month-on-month to 1,638,777 tonnes, 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 stock build, though modest, points to a market that is gradually replenishing after earlier tightness. Our model outlook suggests prices are likely to drift slightly lower over the next seven days, pressured by expectations of another month of rising stocks in the upcoming MPOB report.
Weather: El Niño Dries Key Regions
The current El Niño (ONI +1.0) is bringing notably dry conditions to Sabah, Sarawak and Kalimantan. Dry weather can stress young palms and reduce yields in the medium term, but in the short run it may ease harvesting and logistics constraints. The market appears to be looking past immediate weather concerns, focusing instead on the ample supply picture.
Demand: India and Biofuels Support
India's edible oil imports hit a 10-month peak in July on higher palm oil buying, according to Business Standard. This robust demand, ahead of the festival season, is a key supportive factor. India is also seeking sunflower oil alternatives amid Black Sea disruptions, which could further boost palm oil demand.
On the biofuels front, Indonesia's B50 biodiesel rollout continues, with Pertamina launching nationwide distribution in late July. This policy underpins domestic consumption and supports global palm oil prices. However, the recent 11.4% plunge in Brent crude (now around $80/bbl, up 1.5% on the day) could weaken the economics of biodiesel blending, potentially reducing demand for palm oil as a feedstock.
Price Drivers: Soyoil and Currency
The palm-soyoil spread remains wide, making palm oil attractive relative to soyoil. However, soyoil futures have been under pressure on biofuel demand uncertainty, which has dragged on palm oil at times. The Malaysian ringgit is trading around 4.10 per dollar, while the Indonesian rupiah is near 18,036 per dollar, with the rupiah slipping on slower China manufacturing growth.
Takeaway for Buyers
Watch the upcoming MPOB report for confirmation of another stock build, and monitor crude oil price movements for their impact on biodiesel demand. The dry El Niño weather in Southeast Asia could become a supply risk later in the year, so keep an eye on rainfall forecasts. India's sustained import appetite and the wide palm-soyoil spread are likely to keep a floor under prices in the near term.