Since peaking and retreating in early October, palm oil has sustained a downward trend for over two months. Two temporary rebounds occurred during this period but failed to reverse the overall decline.

Malaysia's Seasonal Production Decline Occurs Later Than Usual

Palm oil production exhibits distinct seasonal patterns primarily linked to the dry and rainy seasons in Southeast Asia's major producing regions. During the dry season, high operating rates drive increased output, while the rainy season sees lower rates and reduced production. Typically, output gradually rises from March to April as the dry season begins, peaking until August-September when the dry season ends. Production then declines as the rainy season starts, continuing until February of the following year when the rainy season concludes.

This year's dry season extended longer than usual, with Malaysian palm oil production continuing to rise through October. The Malaysian Palm Oil Board (MPOB) monthly report indicates October production reached 2.04 million tons, marking an 11% month-on-month increase and a 14% year-on-year rise. Production only began to decline in November to 1.935 million tons, a 5.3% month-on-month decrease but still a 19.4% year-on-year increase. Consequently, this year's seasonal decline in Malaysian palm oil production was delayed by approximately one month compared to normal years and by two months compared to last year.

The extended seasonal production growth cycle in Malaysia has led to increased inventories. According to the MPOB monthly report, Malaysia's palm oil inventory reached 2.835 million tons by the end of November, marking the ninth consecutive month of month-on-month growth. This represents a 54.5% increase compared to the 1.835 million tons recorded during the same period last year, hitting its highest level since March 2019. Consequently, palm oil supply is expected to remain relatively ample throughout the fourth quarter and even into the first quarter of next year.

Limited Impact of Heavy Rainfall in Southeast Asia's Primary Production Areas

From late November to early December, palm oil prices rebounded as persistent heavy rainfall and localized flooding affected Southeast Asia starting mid-November due to the La Niña phenomenon. Initially concentrated in the Indochina Peninsula and the Philippines, the rains gradually shifted southward. By late November, increased precipitation in the Malay Peninsula and northern Sumatra impacted some oil palm plantations, bolstering market bullish sentiment.

After more than two months of fluctuating declines, palm oil prices have now largely retraced the gains made between mid-June and late August this year, approaching the year-to-date low seen in early June. The potential for further near-term declines appears limited. However, the fundamentals of palm oil itself and the broader oilseed sector remain weak. It is anticipated that palm oil prices will likely continue to fluctuate weakly until the formal implementation of the U.S. biodiesel policy in the first quarter of next year.

As an integrated internet platform providing benchmark prices, on December 25th, the benchmark price of palm oil according to SunSirs was 8520.00 RMB/ton, an increase of 0.02% compared to the beginning of the month (8518.00 RMB/ton).

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