Malaysian crude palm oil futures held firm on Tuesday, with the benchmark contract trading around $1,108 per tonne (RM 4,530), up 0.4% from the previous session. The market is consolidating after hitting a four-month high on Monday, supported by strength in Dalian vegetable oil markets and firm crude oil prices, even as supply-side signals remain bearish.
MPOB July data: stocks rise despite export jump
The Malaysian Palm Oil Board reported July output at 1,792,979 tonnes, up 9.4% month-on-month, while closing stocks rose 7.2% to 1,429,316 tonnes. Exports, however, jumped 14.5% to 1,392,178 tonnes — a stronger-than-expected performance that cushioned the impact of rising inventories. Imports fell sharply to 49,566 tonnes (-51.9% MoM), reflecting ample domestic supply.
Despite the stock build, market participants took comfort from the export rebound. As one headline noted, palm oil closed at its highest in four months on Monday, tracking rival oils and expectations ahead of the MPOB release. The data, released Monday, confirmed the inventory increase but also highlighted resilient demand, particularly from India and China.
El Niño and biodiesel: the bullish undercurrent
The market is closely watching weather developments. ENSO conditions are in El Niño territory (ONI +1.4), with notable dryness in Kalimantan, a key Indonesian production region. This has raised concerns about future output, even as current production peaks. Malaysia’s SD Guthrie has flagged potential El Niño impacts on 2027-28 output, adding a longer-term supply worry.
Indonesia, Malaysia, and Thailand have all raised their biodiesel mandates in 2026, with Indonesia's B50 program now rolling out nationwide. This structural demand boost, combined with Brent crude at $87 per barrel (-0.2%), keeps the biodiesel blending economics attractive. A wide BOPO spread means higher crude prices make palm-based biodiesel more competitive, underpinning the vegetable oil complex.
Indonesia reference price: a policy anchor
The Indonesian trade ministry (Kemendag) has set the August CPO reference price at $996.52 per tonne, a level below the Malaysian benchmark. This acts as a policy anchor, influencing export levies and potentially encouraging more Indonesian supply. The reference price is revised monthly and is closely watched by traders for signals on export policy.
Global demand picture: India and China
India's vegetable oil imports surged 13% in recent months as palm oil demand accelerates ahead of festivals. China, however, reported a year-on-year decline in edible vegetable oil imports for the first half of the year, though the market is watching for any shift in buying patterns.
Global food prices are at their highest since 2023, according to the UN food agency, with edible oils contributing to the uptick. This macro backdrop supports the broader oils complex, even as palm oil faces its own supply overhang.
Price outlook: range-bound with downside bias
Our model outlook suggests CPO will trade range-bound with a mild downside bias over the next seven days. Ample stocks and peak production season are likely to cap gains, while supportive biodiesel demand and the wide BOPO spread provide a floor. Heavy Indonesian selling and speculative long liquidation remain risks to watch.
Key levels to monitor: the Malaysian benchmark's ability to hold above $1,100, and any weather-related headlines from Kalimantan. With El Niño firmly in place, the market will be sensitive to any signs of dryness spreading to other regions.
What to watch for buyers
Keep an eye on Indonesian export policy and the monthly reference price, which currently stands at $996.52 per tonne, below the Malaysian benchmark. Also watch for weekly export data from Malaysia and any shifts in the USD/MYR exchange rate (currently around 4.09), as these will influence near-term price direction.