SunSirs: China Palm Oil Prices Trended Upward with Fluctuations in August

According to data from SunSirs, the palm oil market saw a recovery in August, trending upward with fluctuations and recording a gain of over 7%. The average market price stood at 9,234 RMB/ton at the beginning of the month and rose to 9,944 RMB/ton by August 31, marking an increase of 7.69%.

Key factors influencing the palm oil market in August were as follows:

Malaysia: Remained in a seasonal production growth phase, though the pace of growth slowed; exports declined significantly, and inventories continued to accumulate.

Production: August fell within the seasonal production growth cycle; SPPOMA data showed a month-on-month decline of 3.74% in total output and 4.53% in yield, indicating weakening momentum for production growth.

Exports: Total exports for August reached 1.364 million tons, down 14.9% month-on-month. After a period of concentrated purchasing, Indian buyers shifted to a wait-and-see stance; combined with an inverted price spread between soybean oil and palm oil—which eliminated palm oil's advantage as a substitute for edible use—exports weakened significantly.

Inventories: Malaysian palm oil stocks stood at 2.628 million tons at the end of July (a five-month high). With production remaining high and exports declining in August, the market anticipated a further rise in month-end inventories, creating tangible supply pressure for the near term.

Indonesia: Progress on the B50 biodiesel transition period raised expectations for long-term demand.

The three-month transition period for B50 began in July, with mandatory implementation scheduled for October. The annual biodiesel quota is approximately 16.75 million kiloliters; the resulting substantial new industrial demand for palm oil serves as the primary bullish factor for the long-term outlook. During the transition period, existing B40 inventories were still being consumed, meaning the actual physical consumption of biodiesel had not yet fully materialized in August. While Indonesia faced less inventory pressure than Malaysia, it was also in its peak production season, so short-term supply was not tight.

The market has fully priced in the risk of El Niño-induced drought; institutional warnings regarding potential production losses next year due to extreme weather continued to drive up valuations for long-term contracts. Domestic Market: Increased arrivals, rising inventories, and the off-season for consumption; spot prices are lagging behind futures.

Arrivals and Imports: Palm oil arrivals increased month-on-month in August; intermittent positive import margins stimulated vessel bookings, leading to a continued rise in September shipments and significant pressure from future arrivals.

Port Inventories: By the end of August, commercial palm oil inventories in key regions nationwide approached 900,000 tonnes—a sharp year-on-year increase and a high level for this time of year—exerting downward pressure on spot prices.

End-User Consumption: Summer is traditionally the off-season for edible oil consumption; food processing and catering sectors are limiting purchases to essential needs with little willingness to actively restock, resulting in sluggish overall trading. Spot basis levels remain weak, creating a market divergence where futures are strong while spot prices lag.

In summary, while supply pressure from overseas palm oil markets persists in September, rising essential demand and technical indicators suggest room for further price appreciation. The market is expected to see a trend of fluctuating gains, with prices ranging between 9,700 and 10,000 RMB per tonne.

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