Malaysian crude palm oil futures closed lower on the session, easing from recent highs as profit-taking set in and weaker soybean and crude oil futures weighed on the vegetable oil complex. The benchmark settled around $1,143/MT (RM 4,613), down from the previous session's close, with the global benchmark near $1,101/MT and Indonesia's reference price at about $997/MT. The ringgit held near 4.03 per dollar, and the rupiah at about 17,759, keeping export competitiveness in focus.

Supply: Stock Builds, But Dry Weather Looms

Malaysia's July data, confirmed by the Malaysian Palm Oil Board, showed stockpiles rose 7.2% month-on-month to 1,429,316 tonnes, with CPO production up 9.4% to 1,792,979 tonnes and exports jumping 14.5% to 1,392,178 tonnes. Imports tumbled 51.9% to just 49,566 tonnes. The stock increase aligns with the seasonal peak-output period, but the medium-term outlook remains tight.

With El Niño conditions firmly in place (ONI +1.4), dryness is spreading across key growing regions—notably Sarawak and Kalimantan. The Indonesian Palm Oil Association (GAPKI) has warned that El Niño could crimp Indonesian palm oil output, with production at risk of decline into 2027. This reinforces the market's existing concern about supply tightness, even as near-term supply remains ample.

Demand: Biodiesel and Exports

Indonesia's push toward B50 biodiesel remains a structural demand pillar. Reports indicate the mandate is not hurting exports, and export levy revenue is projected to rise 31% this year, with total collections seen at Rp 41.22 trillion. This suggests the government can sustain aggressive biodiesel blending without sacrificing export earnings—at least for now.

However, softer crude prices are a headwind for biodiesel economics. Brent slipped about 0.5% to near $88/bbl, narrowing the incentive for blending. Weaker soybean oil futures, partly due to an extended U.S. RFS compliance deadline, also dragged on the vegetable oil complex sentiment. Chinese vegetable oil stocks are reportedly building, adding another bearish factor.

Price Outlook: Choppy Consolidation

Our model outlook sees CPO caught between ample near-term supply (high July stocks, peak output) and bullish medium-term factors (El Niño, B50, wide BOPO). The recent drop in Brent and crowded long positioning tilt risk to a modest pullback over the next seven days, but downside is limited by demand switching and production worries. We expect choppy consolidation near highs with a slight downward bias, and our published path shows +0.4% over the next seven sessions.

Despite the session's decline, traders expect CPO futures to stay bullish next week, supported by lingering El Niño supply risks—now underscored by GAPKI's warning—and steady biodiesel demand. The next MPOB release in about 14 days is a key risk event.

Takeaway for Buyers

Watch the weather in Sarawak and Kalimantan, as any intensification of dryness could quickly shift sentiment from stock-driven to supply-driven. Also monitor Indonesian export levy policy and B50 implementation pace, as well as crude oil's direction—all are key swing factors in the near-term price path.