Market Overview

Malaysian crude palm oil futures extended losses on August 7, easing 0.3% to about $1,104/MT (RM 4,515/MT), as traders took profits and tracked weaker soybean and crude oil markets. Despite the session's decline, contracts remain on track for a weekly gain, supported by lingering El Niño concerns and firm biodiesel demand expectations.

The global benchmark stood at about $1,101/MT, while Indonesia's August reference price was set at $996.52 per tonne, down from the previous month's level. The lower reference price is expected to trim export tax expectations for Indonesian shipments, potentially encouraging greater export flows.

Supply: Peak Output and Stock Build

Malaysia's June MPOB data showed CPO production at 1,638,777 tonnes, up 8.1% month-on-month, with closing stocks rising 3.7% to 1,332,697 tonnes. Exports grew 5.7% to 1,198,567 tonnes, while imports surged 135.3% to 103,113 tonnes, reflecting tight domestic supply earlier in the year.

With the industry entering peak production season, inventories are likely to expand further. Our model outlook suggests CPO prices are poised near a tipping point as the approaching MPOB July report meets a surge in El Niño probability, a nascent B50 rollout, and a sharp Brent crude sell-off. Near-term, expect consolidation around $1,100–$1,120, with a slight bias to the upside from preseasonal restocking, but high uncertainty.

Weather: El Niño Lingers

El Niño conditions persist (ONI +1.4), with dry weather reported in Sabah, Sarawak, and Kalimantan. While current rainfall deficits have not yet hit yields, the market is wary of potential stress on trees in the coming months. This is a key factor limiting downside, as any prolonged dryness could tighten supply later in the year.

Demand and Energy: Mixed Signals

Crude oil slipped 0.6% to about $83/bbl, trimming support for biodiesel blending economics. However, Indonesia's nationwide B50 biodiesel rollout and India's robust buying—July edible oil imports hit a 10-month peak—underpin demand. A wide soy-palm spread also makes palm oil attractive for price-sensitive buyers, though weaker soybean oil futures added pressure to the complex.

What to Watch

The upcoming MPOB July report is pivotal. A further stock build could extend losses, but any weather-related supply concerns or changes in Indonesian export policy could quickly reverse sentiment. The lower Indonesian reference price and the rupiah's direction (USD/IDR at about 17,941) will shape export tax expectations. Buyers should monitor crude oil prices and next week's MPOB data for near-term cues.