Malaysian crude palm oil futures settled around $1,143 per tonne (RM 4,613), up 0.4% from the previous session, as the market balanced fresh El Niño-driven supply concerns against a larger-than-expected build in Malaysian inventories. The global benchmark, as tracked by the World Bank, stood at about $1,101 per tonne, while Indonesia's reference price was $997 per tonne, underscoring the wide discount for Indonesian product.
Supply: El Niño and Stocks
The Malaysian Palm Oil Board's July data showed production at 1,792,979 tonnes, up 9.4% month-on-month, while closing stocks rose 7.2% to 1,429,316 tonnes. Exports jumped 14.5% to 1,392,178 tonnes, a sign of robust buying ahead of peak demand. However, imports fell sharply by 51.9% to 49,566 tonnes, reflecting reduced inter-country flows.
Weather remains a key risk. The El Niño episode (ONI +1.4) is causing dry conditions in key growing regions of Sarawak and Kalimantan. Producer group GAPKI has warned of a potential CPO deficit next year if the plantation replanting program (PSR) is not accelerated, while industry voices caution that a severe El Niño could shrink output. These concerns helped lift futures in the latest session, with Bernama reporting a rebound on El Niño worries. Our model outlook sees CPO consolidating near $1,146 with a mild upward bias, supported by El Niño fears and the wide $419 gap between Malaysian and Indonesian prices, but capped by ample stocks and peak seasonality.
Demand: Biodiesel and Geopolitics
Indonesia's push toward B50 biodiesel remains a structural demand driver. Recent news highlights that B50 is reshaping the energy and industrial landscape, with domestic consumption of palm oil for biodiesel reaching 1.13 million tonnes in June. This, combined with a 64% surge in Indonesia's palm oil exports in June, points to strong overall demand.
Geopolitical disruptions and tighter supply are expected to keep prices above MYR 4,600 in September, according to MPOC. However, weak Brent crude at $88 per barrel (down 0.2%) limits the appeal of biodiesel blends on pure economics, and rising vegetable oil stocks in China are adding pressure.
Market Dynamics
The Malaysian ringgit traded at 4.03 per dollar, while the rupiah weakened to 17,696 per dollar, affecting competitiveness. Palm oil's price relationship with soybean oil remains in focus; soybean oil futures fell 7% after the EPA extended the RFS compliance deadline, which could indirectly weigh on palm oil.
Outlook for Buyers
Expect choppy trade in the near term. Watch the upcoming MPOB August release and cargo-surveyor export data for direction. The El Niño supply narrative and B50 demand provide a floor, but ample stocks and soft energy prices cap upside. Buyers should monitor the spread between Malaysian and Indonesian offers, as the wide discount may present opportunities.