MPOC: palm oil supported by firm Indian demand, soyoil prices

MPOC: palm oil supported by firm Indian demand, soyoil prices

The global edible oil market continues to experience volatility, with palm oil and soybean oil dynamics creating both headwinds and opportunities for investors. As of July 2025, the price relationship between these two commodities remains a critical focal point. Palm oil is trading at a $50/tonne discount to soybean oil in India, a gap that has driven a significant surge in palm oil imports in May 2025 [1].

This discount has made palm oil an attractive alternative for buyers in India, the EU, and China, where trade policies and currency depreciation are amplifying its competitiveness. However, the weakness in soybean oil prices is a double-edged sword, signaling broader macroeconomic fragility [1]. Investors must watch for signs of a commodity supercycle reversal, particularly if crude oil prices collapse further.

Malaysia and Indonesia, the twin engines of the palm oil market, have shown contrasting export trajectories. Malaysia's palm oil exports rose 4.3% month-on-month in June 2025, driven by India's duty cuts and the EU's renewed interest in sustainable biodiesel [1]. Meanwhile, Indonesia's inventories have plummeted to a 2-year low of 1.8 million tonnes, a direct result of its B40 biodiesel mandate [1].

However, these gains come with caveats. Malaysian inventories are rising, hitting 1.99 million tonnes in May, raising the risk of a price correction if exports fail to keep pace with production [1]. Indonesia's export levy hike to 10% has also created a pricing headwind, potentially reducing CPO exports by 2 million tonnes [1].

The market is currently testing key technical levels. Malaysian palm oil futures (BMD FCPO) are trading at 4,030 MYR/tonne, a critical inflection point. A breakdown below this level could trigger a test of the 3,900 MYR/tonne support, while a breakout above 4,175–4,180 MYR/tonne would signal a bullish reversal [1]. The risk of oversupply looms large, particularly if Malaysian stocks cross the 2 million tonne threshold [1].

Geopolitical tensions add another layer of volatility. The Iran-Israel conflict has spiked shipping insurance costs, indirectly affecting palm oil logistics. Meanwhile, the Strait of Hormuz remains a wildcard—any disruption here could spike crude prices and indirectly boost biodiesel demand [1].

For investors willing to bet against the short-term bearish narrative, the current price of 4,030 MYR/tonne offers a compelling entry. Structural demand from India, Indonesia's B40 mandate, and Malaysia's production discipline create a compelling long-term case [1]. However, caution is warranted. Investors should size positions carefully and use stop-loss orders below 3,900 MYR/tonne to mitigate the risk of a supply-driven collapse [1].

Palm oil prices slipped after a recent rally, as traders locked in profits right when Indian imports surged to their highest in nearly a year and currency movements reshaped the competitive landscape [2]. Malaysia’s benchmark September palm oil contract retreated after a short-lived rebound, with investors cashing out gains despite robust demand from Indian refiners lured by better price spreads compared to soyoil and sunflower oil [2]. Shifts in other edible oils added to the mix: Chinese edible oil futures rose, while US soyoil prices nudged lower, underscoring palm oil’s close ties to rival markets [2]. The Malaysian ringgit inched down 0.07%, helping make exports more attractive abroad [2]. Layered on top, global politics are in play, from talks of fresh sanctions on Russian oil to the ripple effects of international trade tariffs weighing on commodity prices [2].

India aims to significantly increase its domestic Crude Palm Oil (CPO) production from 0.35 MT to 2.3 MT by 2029 through the National Oil Palm Mission, expanding plantation area to 1 Mha [3]. The government is aiming to increase domestic crude palm oil (CPO) production from the current level of 0.35 million tonne (MT) to 2.3 MT by 2029 under the National Oil Palm Mission [3]. The plantation area is set to reach a million hectare (Mha) by next few years, from the current level of 0.6 Mha [3]. An official said several companies, including Godrej Agrovet, Patanjali Food and 3F Oil Palm Agrotech are planning expansion [3].

In conclusion, the palm oil market is a masterclass in supply-demand imbalances and policy-driven volatility. While short-term bearish pressures exist—oversupply, geopolitical risks, and soy oil weakness—the structural demand from India, Indonesia's B40 mandate, and Malaysia's production discipline create a compelling long-term case. For contrarians, the current price level is a strategic entry point, provided they're prepared to weather near-term turbulence.

References:
[1] https://www.ainvest.com/news/palm-oil-market-volatility-navigating-soy-oil-weakness-and-export-dynamics-for-contrarian-gains-25071010f933562c04def60a/
[2] https://finimize.com/content/palm-oil-prices-slip-after-rally-as-traders-cash-out
[3] https://www.financialexpress.com/policy/economy/crude-palm-oil-output-may-see-quantum-jump/3917026/