Palm Oil Prices Surge Amid Supply Tightening and Biodiesel Demand: Weekly Gains Signal Strategic Opportunities

The palm oil market has entered a period of heightened volatility, with prices surging to $650 per ton in early April—a 5% monthly gain—before retreating slightly mid-month. This rollercoaster reflects a mix of bullish fundamentals and bearish pressures, creating a critical juncture for investors.

Key Drivers of Recent Gains

Palm oil’s upward momentum stems from supply-side disruptions and strong biodiesel demand, tempered by geopolitical risks and weak crude oil prices.

1. Supply Constraints Dominate

• Weather and Labor Issues: Heavy rainfall in Malaysia and Indonesia disrupted harvesting, cutting February production by 4.16% year-on-year. Stocks fell to 1.51 million metric tons—the lowest since April 2023—as floods and labor shortages hampered output.
• Replanting Delays: Both nations are falling behind on replanting targets, with Malaysia replanting just 2.3% of its total area in 2023. This limits long-term yield growth, exacerbating structural supply risks.

2. Biodiesel Mandates Fuel Demand

Indonesia’s B40 mandate (40% palm oil in biodiesel), effective since January 2025, is a game-changer. The policy is projected to absorb an additional 1.7 million metric tons of palm oil annually, tightening global supplies. Analysts at MARC Ratings estimate this could push prices to MYR 4,600/MT by year-end, up from 2024’s average of MYR 4,200/MT.

3. Trade Dynamics and Geopolitics

• US Tariffs: A 32% tariff on Indonesian palm oil imports has reshaped trade flows, pushing buyers toward cheaper alternatives like soybean oil. This has created downward pressure on prices, particularly as traders anticipate further trade disputes.
• Currency Fluctuations: The Malaysian ringgit’s 0.54% rise in April reduced the currency’s purchasing power for palm oil, making exports less competitive.

Downward Pressures: Crude Oil and Soybean Competition

• Weak Crude Oil Prices: Crude’s dip to $60–$65 per barrel reduced the cost advantage of biodiesel, dampening demand for palm oil as a feedstock.
• Soybean Oil Gains: Lower soybean prices and logistical bottlenecks in palm oil supply chains have made substitutes more attractive.

Technical Analysis and Support Levels

Palm oil futures on the Bursa Malaysia fell 3.05% week-on-week mid-April, testing support at MYR 4,072/MT. Analysts note that prices could retest MYR 4,026/MT before rebounding toward MYR 4,795/MT by early 2026. A breach of MYR 4,347/MT could trigger further declines to MYR 4,266–4,303/MT.

Investment Considerations

• Buy the Dip Strategy: Prices may rebound toward MYR 4,795/MT after testing support levels, driven by Indonesia’s B40 mandate and restocking demand from India and China.
• Monitor Crude Oil Trends: A rebound in crude prices above $70/barrel would boost biodiesel competitiveness, favoring palm oil.
• Regulatory Clarity: Companies with RSPO certification may outperform post-EU Deforestation Regulation implementation in late 2025.

Conclusion: Navigating Volatility for Long-Term Gains

Palm oil’s weekly fluctuations highlight its sensitivity to supply-demand imbalances and policy shifts. While short-term risks—such as weak crude prices or trade wars—could prolong dips, the long-term bullish case remains strong. Key data points reinforce this:
- B40’s Impact: The mandate alone could add 5 million metric tons of demand by 2026.
- Demand Growth: India’s palm oil imports rose 14% in March 2025, signaling sustained demand.
- Structural Scarcity: Replanting delays and weather risks ensure supply constraints will persist.

Investors should prioritize quality producers with cost-efficient operations and exposure to biodiesel markets. The MARC Ratings forecast of a 2025 average of MYR 4,600/MT underscores the potential for gains, provided geopolitical risks abate and biodiesel policies advance. For those willing to ride the volatility, palm oil offers a compelling opportunity in the coming quarters.

Final word: Stay agile, monitor technical levels, and bet on demand drivers—palm oil’s fundamentals are too strong to ignore.