Since August, Malaysian palm oil futures prices have trended upward amidst volatility, breaking out of the 4,500–4,750 ringgit/tonne range and briefly testing a high of 5,000 ringgit/tonne.

Driven by international market trends, the main palm oil futures contract on the Dalian Commodity Exchange (DCE) simultaneously breached the critical 10,000 RMB/tonne threshold.

In the spot market, the price of "24-degree" palm oil in Guangdong rose from approximately 8,200 RMB/tonne in early August to the 9,800 RMB/tonne range by late August.

my country relies primarily on imports for its palm oil supply, so domestic price fluctuations are closely linked to global market fundamentals.

Overall, the core mechanisms driving volatility in the palm oil market can be analyzed through a supply-demand framework:

Key factors include the impact of weather on production, the influence of biodiesel demand on consumption, and the effect of Indian edible oil imports on exports from producing regions—all of which ultimately tie back to inventory levels in Southeast Asian producing countries.

Intensifying Weather Disruptions Raise Concerns About Future Palm Oil Production

Meteorological data and fundamental analysis indicate that weather agency forecasts and precipitation patterns in Southeast Asian producing regions are continuously influencing expectations for future supply:

Weather forecasts and probabilities: According to the latest diagnostic report from the U.S. National Oceanic and Atmospheric Administration (NOAA), the El Niño phenomenon is expected to persist through the Northern Hemisphere spring. Meteorological data shows a high probability of a strong El Niño event occurring between September and November.

Rainfall and soil moisture in major producing regions: Indonesia and Malaysia—the core palm oil-producing regions in Southeast Asia—account for approximately 85% of global production. Monitoring indicates a recent downward trend in soil moisture across key producing areas, including Sumatra, Central Kalimantan, and West Kalimantan; the potential risk of drought warrants continued attention.

Lag effect on production: There is typically a 6-to-9-month lag between abnormal rainfall or drought conditions and their impact on oil palm yields and actual production output. Consequently, the impact of the recent reduction in precipitation on actual supply from producing regions is expected to gradually manifest in the second and third quarters of 2027.

Analysis combining meteorological models and historical data indicates that the material impact of extreme weather disruptions on crop yields exhibits a significant time lag; the resulting expectation of tighter long-term supply will serve as a key variable influencing medium- to long-term market fundamentals.

Biodiesel Policy Implementation Drives Steady Growth in Palm Oil Consumption

Indonesia has announced the implementation of the B50 program (blending 50% palm oil-based biofuel into diesel) starting July 1. Compared to the B40 program, the market anticipates that full implementation of this policy could boost Indonesia's annual industrial demand for palm oil by 3.0 to 3.5 million tonnes.

Indonesia's B50 technology is currently well-established, and high international energy prices have alleviated the financial burden of subsidizing the program. Even during periods of low crude oil prices, Indonesian officials have consistently affirmed their commitment to advancing the B50 initiative.

Furthermore, Indonesia has introduced policies this year to restrict diesel imports and established a state-owned entity to centralize palm oil export operations, thereby securing the domestic supply of biodiesel feedstock and supporting downstream processing within the value chain.

While there is ongoing debate regarding the timeline for fully implementing high blending ratios, the actual pace of policy execution and the realization of increased consumption depend directly on the recovery of palm oil production in the growing regions. The combined impact of long-term feedstock supply and biodiesel consumption policies constitutes a critical fundamental factor driving changes in medium- to long-term demand.

India's Peak Season Begins; Palm Oil Exports from Producing Regions Improve

As a major global importer of edible oils, India's purchasing activity directly influences export figures and trade flows from Southeast Asia. India's total edible oil imports were relatively low in the first half of the year, with a particularly noticeable decline in palm oil imports. Historically, India has favored soybean oil purchases in the second quarter; however, as price differentials between various oil types shift, the cost-effectiveness of palm oil as a substitute in the international market has become increasingly apparent.

Monitoring data indicates that India's vegetable oil inventories are currently at low-to-moderate levels. Since the start of the second half of the year, driven by traditional festivals and the peak consumption season, India has gradually ramped up its palm oil procurement. The release of seasonal restocking demand from India in the second half of the year has served as a primary external driver boosting export shipment volumes from Southeast Asian producing regions, providing immediate support for inventory drawdown in the short term.

**Limited Inventory Pressure; Growth in Southeast Asian Production Hubs Slows**

An analysis of inventory distribution across major palm oil-producing regions reveals structural differences within Southeast Asia. Currently, Malaysia is showing signs of inventory accumulation, whereas Indonesia’s domestic inventory levels remain generally low to moderate.

When the data from both regions are combined, although total inventories at the source are experiencing a temporary buildup, the overall rate of increase remains manageable, reflecting continued strong underlying support from downstream consumption.

In summary, inventory levels at the source—acting as a "core variable" in the supply-demand dynamic—are shaped by the interplay of three key factors: the lagged impact of weather on production, increased industrial consumption driven by biodiesel policies, and seasonal restocking by major buyers like India. Over the medium to long term, the combined influence of these fundamental variables will continue to profoundly affect the pace of inventory drawdown in Southeast Asia's major producing regions.

Weak Current Realities vs. Strong Expectations: Palm Oil Prices Poised to Rise in the Long Term

my country’s palm oil supply relies heavily on imports; consequently, domestic price trends are largely driven by pricing in international producing regions, while also being influenced by local supply-demand dynamics for edible oils.