Malaysian Palm Oil Futures: Riding the Currency Wave Amid Global Competition

The Malaysian palm oil market in Q2 2025 has become a battleground of competing forces: currency fluctuations, production booms, and geopolitical trade policies. For investors, navigating this volatility requires a deep dive into how the Malaysian Ringgit (MYR) and rival commodity dynamics are shaping futures prices. Let's dissect the key drivers and risks to determine where opportunities lie.

The Currency Crucible: MYR's Dual Role in Pricing Power

Malaysian palm oil's export competitiveness hinges on the MYR's exchange rate. A weaker MYR makes Malaysian crude palm oil (CPO) cheaper for global buyers, boosting demand, while a stronger MYR does the opposite.

Recent data shows the MYR fluctuating between 3.85 and 4.25 against the USD. Early Q2 saw the MYR strengthen to 3.856 MYR/USD, squeezing export margins and contributing to a 2% dip in palm oil futures. However, a subsequent MYR weakening to 4.20 by mid-June revived demand, lifting prices to 3,909 ringgit/ton—a 1.5% rebound.

The MYR's trajectory is critical for Q3. Analysts project further MYR depreciation to 4.23 by year-end, potentially giving Malaysian exporters a cost advantage over rivals like Indonesia. Yet, a sustained MYR rally could reverse this, as seen in Q2's early volatility.

Production Surge vs. Global Demand: A Delicate Balance

Malaysia's palm oil production rose 21.5% month-on-month in April 2025 to 1.69 million metric tons, driven by post-flood recovery and favorable weather. This has pushed inventories up 19.4% to 1.87 million tons—a record high.

While oversupply pressures have kept Malaysian prices range-bound (RM 3,750–4,050/MT), Indonesia's B40 biodiesel mandate—diverting 2 million tons of CPO to domestic use—has tightened global supply. This creates a paradox: Malaysian surpluses weigh on prices, but Indonesia's reduced exports provide a floor.

Competitive Positioning: Outmaneuvering Soybean Oil and Indonesian Rivals

Malaysian palm oil's edge over soybean oil depends on pricing differentials. In late May, palm oil traded at a $50/MT discount to soybean oil—a gap that lured buyers back to Malaysia after months of soybean dominance. However, Indonesia's aggressive export policies threaten this advantage.

• Indonesian Leverage: Jakarta slashed CPO export levies to 9.5% in June, undercutting Malaysia's 9.5% duty. While this narrows the cost gap, Malaysia's proximity to India and the Middle East (key buyers) retains logistical and pricing appeal.
• Sustainability Struggles: The EU's Deforestation Regulation (EUDR) poses a risk. Only 86.5% of Malaysian plantations are MSPO-certified—below the 95% target for EU compliance. Failing to meet this could exclude Malaysia from premium European markets.

Investment Strategy: Navigating the Crosscurrents

For traders, the near-term focus is on MYR dynamics and inventory drawdowns.

1. Short-Term Play:
2. Buy the Dip: If the MYR weakens further toward 4.25, consider long positions at RM 3,800/MT. Target resistance at RM 4,000/MT, with a stop-loss below RM 3,700.

3. Watch China's Restocking: Chinese buyers, who account for 10% of Malaysian exports, could drive a Q3 rally if they resume bulk purchases.

4. Medium-Term Caution:

5. Overproduction Risks: A 10% drop in Sabah's output may limit supply growth, but a sustained production rebound could push prices back down.

6. Beware the POGO Spread: Palm oil's competitiveness as a biodiesel feedstock depends on the POGO (palm oil vs. gasoil) spread. A widening gap (currently $165/MT) could deter blending unless crude prices rise.

7. Long-Term Thesis:

8. Sustainability Push: Investors should prioritize firms investing in MSPO 2.0 certification to secure access to EU markets.
9. Geopolitical Hedge: Diversification into Indonesian CPO futures could offset Malaysia-specific risks, though Indonesia's policy volatility complicates this.

Final Take: A Volatile Dance Worth Watching

Malaysian palm oil futures are caught in a high-wire act between currency swings, supply gluts, and geopolitical maneuvering. The MYR's path and Indonesia's policy choices will be the ultimate deciders. For now, the sweet spot lies in strategic long positions during MYR weakness, paired with close monitoring of inventory data and biodiesel economics.

Investors should also stay vigilant on external factors like U.S. soybean output and the EU's stance on palm oil. In this volatile landscape, patience and flexibility will be rewarded—provided you dance to the MYR's rhythm.

Disclaimer: Futures trading involves risk, including the potential loss of principal. Always conduct thorough due diligence and consider your risk tolerance before investing.