Malaysian Palm Oil: Riding the Wave Amid Volatile Supply and Geopolitical Crosscurrents

The Malaysian palm oil market is caught in a tug-of-war between surging production, record inventory builds, and shifting global demand dynamics. With prices oscillating between bearish pressures and sporadic bouts of geopolitical-driven optimism, investors must navigate this landscape with precision. Let’s dissect the technical and fundamental forces at play, and identify the critical levels and catalysts shaping the next phase of this commodity’s trajectory.

Technical Analysis: Key Levels and Volatility Clusters

Malaysian palm oil futures have been confined to a 3,750–4,050 ringgit/MT range since early 2025, with April’s price action underscoring this volatility. The recent decline from a six-month high of 4,511 ringgit/MT to a low of 3,961 ringgit/MT reflects the market’s sensitivity to both supply gluts and external shocks like U.S. tariffs.

• Immediate Resistance: 4,050 ringgit/MT. A sustained breach here would signal a retest of April’s highs, but only if supported by stronger exports or a narrowing soybean oil premium.
• Key Support: 3,750 ringgit/MT. A break below this level could open the door to 2024 lows near 3,400 ringgit/MT, especially if inventory stocks continue to accumulate.

Trade Strategy: Adopt a cautious stance, using stop-loss orders below 3,750 ringgit/MT to protect against a bearish breakout. Consider light long positions near 3,800–3,900 ringgit/MT if export data improves, but prioritize downside risk management.

Fundamental Pressures: The Supply-Side Tsunami

1. Production Surge Meets Stagnant Demand
Malaysia’s palm oil output hit a 1.69 million MT record in April, a 21.5% jump from March, driven by favorable weather and higher yields in Sabah and Sarawak. Meanwhile, inventories swelled to 1.87 million MT, a 19.4% increase over March, as domestic consumption dipped to 338,737 MT.

This oversupply dynamic has kept prices capped, with exports lagging 13% below April 2024 levels despite a partial recovery in Indian buying. The price premium over soybean oil—a key determinant of demand—remains a critical watch metric. A narrowing gap here could spur further purchases, but the market remains supply-constrained unless demand accelerates.

2. Export Dynamics: India’s Return and China’s Restocking
India resumed imports in April after a five-month hiatus, while China’s May–June restocking window could boost demand. However, cumulative exports through April 2025 remain 14% below 2024 levels, underscoring persistent weakness. Analysts note that competitive pricing—currently palm oil trades at a $100/MT discount to soybean oil—could eventually tilt the scales, but timing remains uncertain.

Geopolitical Crosscurrents and Biodiesel Demand

1. U.S. Tariffs: A Nuisance, Not a Catastrophe
The U.S. imposed a 24% tariff on Malaysian palm oil in April, but its impact is muted: the U.S. accounts for <1% of Malaysia’s exports. The real battleground remains Asia, where Malaysia is diversifying sales to ASEAN, the Middle East, and South Africa to offset Indian volatility.

2. Sustainability Push and EU Access
Malaysia’s 86.5% MSPO certification (versus the EU’s Deforestation Regulation) positions it to retain access to key markets. The Q3 2025 MSPO Impact Alliance launch aims to further tighten compliance, which could reduce regulatory risks and stabilize prices.

3. Biodiesel Demand: A Long-Term Catalyst
Global biodiesel production—30% of palm oil demand—is buoyed by Indonesian B40 mandates and Chinese biofuel subsidies. While this doesn’t resolve short-term oversupply, it ensures palm oil’s relevance in energy transitions, supporting a floor for prices.

Actionable Signals and Risk Management

1. Monitor the May 13 MPOB Report
The April production and inventory data release on May 13 will confirm whether stocks are peaking or still rising. A stockpile above 1.9 million MT would reinforce bearish sentiment, while a surprise decline could spark a short-covering rally.

2. Track Crude Oil and Soybean Oil Trends
Palm oil is correlated at 65% with crude oil prices due to its biofuel role. A crude oil rebound above $80/bbl or a soybean oil premium widening beyond $150/MT could lift palm oil prices.

3. Export Data from Key Markets
India’s monthly imports and China’s restocking activity (May–June) will determine if demand can absorb the surplus. A weekly export data surge above 1.1 million MT could push prices toward 4,200 ringgit/MT.

Conclusion: A Balancing Act for Investors

Malaysian palm oil is a classic “buy the dip, sell the rip” commodity in 2025. While fundamentals suggest a bearish bias due to oversupply, geopolitical tailwinds and biodiesel demand create periodic buying opportunities.

Recommended Positioning:
- Short-term: Avoid aggressive long positions unless exports surprise to the upside.
- Long-term: Accumulate on dips below 3,850 ringgit/MT, targeting 4,050 ringgit/MT, with stops below 3,750 ringgit/MT.

The path forward hinges on inventory absorption, export momentum, and global oil trends. Stay vigilant—this market won’t reward complacency.

Final Call to Action: With May’s export data and the MPOB report looming, now is the time to size positions strategically. The palm oil trade is a game of inches—play it with discipline.