Palm Oil Prices Find a Floor Amid Indian Buying Frenzy and Short Covering Surge

The palm oil market is playing a high-stakes game of "wait for it" right now. Prices have hit a 7-month low, but a perfect storm of Indian buying, short covering, and technical support is keeping them from collapsing further. Let me break this down—because this could be your chance to make a move in commodities before the summer rally.

The Setup: Prices Near Rock Bottom, But Buyers Are Stirring
Palm oil prices have plummeted to RM3,940 per metric ton—a 10% drop since early April—as Malaysian production surged by 16.8% in March. But here’s the twist: that very oversupply has made palm oil cost-competitive with soybean oil for the first time in months. The price gap is now just $50/ton, and Indian buyers are pouncing.

This chart shows the steep decline, but also the stubborn resistance near RM3,700. That’s no accident—it’s a psychological and economic floor. Below this, palm becomes a steal compared to rivals, forcing buyers to act.

Why India’s Buying Spree Matters

India’s palm oil imports could jump to 600,000 tons in June, up from a paltry 322,000 tons in April. Why? Simple economics. Palm oil is now cheaper than soybean oil, and refiners are desperate to restock after inventories hit a six-month low of 1.67 million tons. Analysts like Rajesh Patel warn, “Depleted stocks mean no choice but to buy now.”

This isn’t just about prices—it’s about geopolitics. With U.S. tariffs keeping palm oil out of America and the EU’s deforestation rules still on ice, Asia is the battleground. India’s imports are a lifeline for Malaysian and Indonesian producers, and that’s why traders are buying futures to cover their shorts.

Short Covering: The Quiet Force Propping Up Prices

Let’s talk about the “short covering” everyone’s whispering about. Traders who bet on lower prices are now scrambling to close those positions as Indian demand picks up. This isn’t just theory—look at the May 2025 futures contract (FCPO1). It’s holding near RM3,727, just above the critical RM3,702 support level.

This chart highlights the danger zone. If prices break below RM3,702, the next stop is RM3,638—a two-year low. But for now, short covering is acting like a safety net.

The Risks Lurking in the Shadows

Don’t mistake this rebound for a permanent fix. Two elephants are in the room:
1. Malaysia’s Overproduction: March stocks hit 1.56 million tons, and with rains boosting output, supplies could flood the market again.
2. Indonesia’s B40 Mandate: While it’s soaking up local supply, delays in implementation could leave global markets oversupplied.

Plus, crude oil’s slump to $64.5/barrel is killing biodiesel demand—a major use case for palm oil. If crude stays weak, the rally could fizzle.

Conclusion: Buy the Dip—But Keep an Eye on the Exit

Here’s the bottom line: Palm oil is a “sell the rally, buy the dip” story right now. The $50/ton price gap with soybean oil and India’s restocking mean the downside is limited near RM3,700. But unless China joins the buying party or crude oil rebounds, don’t expect a sustained boom.

Action Alert:
- Aggressive traders: Go long on FCPO1 futures if it holds above RM3,700.
- Cautious investors: Wait for a breach of RM3,638 to confirm a bottom.

The key stats:
- Indian imports could hit 750,000 tons/month by September.
- Analyst Dorab Mistry sees prices testing RM3,500 by November—but only if production keeps surging.

This is a volatility play, not a buy-and-hold. Palm oil’s dance between oversupply and demand is far from over. Stay nimble!

Data as of May 2025. Past performance does not guarantee future results.