Palm Oil Prices Plunge Amid Crude Slump and Vegetable Oil Competition

The global vegetable oil complex has entered a period of profound turbulence, with palm oil leading a sharp downward spiral in April 2025. This decline, driven by surging production, collapsing crude oil prices, and shifting trade dynamics, has reshaped market fundamentals. Below is an analysis of the forces at play and their implications for investors.

Palm Oil: Oversupply and Crude’s Collapse

Palm oil futures on the Malaysian Bursa Malaysia plummeted to $931/ton in early April—marking a 10% drop from March—before stabilizing near $974/ton by month-end. The decline stems from three critical factors:

1. Production Surge: Malaysian output jumped 16.76% in March, swelling inventories as exports grew a meager 1%. Improved weather and higher fruit yields fueled the rebound, outpacing demand.
2. Crude Oil’s Impact: Brent crude collapsed to a four-year low of $64.5/barrel, eroding demand for palm oil as a biodiesel feedstock. The POGO spread (palm oil vs. gasoil) widened to $165/ton, making biodiesel blending less profitable without subsidies.
3. Trade Shifts: U.S.-China tariffs disrupted global flows, with Indian palm oil imports falling to 43% market share from 61% a year earlier. Buyers shifted to cheaper alternatives like sunflower oil.

Despite these pressures, palm oil regained a $50/ton discount over soybean oil, spurring Indian imports to surge 14% month-on-month in March. Analysts warn, however, that oversupply risks remain if production continues to outpace demand.

Soybean Oil: Volatility Amid Supply Risks

Soybean oil futures fell 4.8% in April, closing near $1,009/ton, as U.S. inventory tightness clashed with supply uncertainties. South American harvest delays and logistical bottlenecks initially buoyed prices, but fears of an oversupply in 2025-26—ahead of a potential record soybean crop—pushed prices lower.

The U.S. biodiesel subsidy has provided some support, but the CFETrade data shows that palm oil’s price competitiveness has eroded soybean oil’s market share in India. With soybean oil now trading at a $50/ton premium to palm oil, buyers are increasingly favoring cheaper alternatives.

Rapeseed Oil: Geopolitical Headwinds

Rapeseed oil prices stagnated near $1,124/ton, with a 15.8% year-on-year decline, as China’s 100% tariff on Canadian rapeseed disrupted supply chains. Buyers turned to EU and Russian imports, but a weaker euro narrowed price gaps between European and Canadian rapeseed, complicating trade flows.

Meanwhile, EU rapeseed prices rose due to reduced supplies, highlighting a regional divergence:
- Northeast Asia saw prices hit $1,320/ton (+3.1% month-on-month).
- North America fell to $1,180/ton, while Europe hovered near $1,240/ton.

Crude Oil: The Elephant in the Room

Crude’s collapse to $64.5/barrel—a 9.3% monthly decline—exposed the vulnerability of vegetable oils tied to biodiesel demand. OPEC+’s decision to unwind voluntary cuts and U.S. shale’s cost constraints (requiring $65/bbl to break even) amplified oversupply fears.

The IEA’s revised demand forecast—cutting 2025 growth by 300 kb/d—further underscored the link between crude and vegetable oils. For palm oil, this means biodiesel demand hinges on subsidies like Indonesia’s B40 mandate, which diverts 2 million metric tons of supply domestically.

Interconnected Dynamics and Investment Implications

The vegetable oil complex is now a microcosm of global market fragility:
- Palm Oil: Short-term stability depends on India’s import momentum and Malaysian production. A rebound could occur if crude prices recover or biodiesel margins improve. However, bearish risks include further overproduction or China’s weak demand.
- Soybean Oil: U.S. subsidy policies and South American harvest outcomes will determine its path. A delayed soybean crop could tighten supplies, but oversupply fears remain.
- Rapeseed Oil: China-Canada trade resolution and EU supply normalization are critical. Investors should monitor tariffs and production data closely.
- Crude Oil: OPEC+ compliance and macroeconomic health (e.g., U.S.-China trade tensions) will dictate prices.

Conclusion

Palm oil’s April slump reflects a confluence of structural oversupply, crude’s weakness, and shifting trade patterns. While its $50/ton discount to soybean oil has spurred demand in India, bearish risks—including record Malaysian output and China’s subdued buying—suggest caution. Investors should:

1. Hedge with biodiesel stocks: Companies like Wilmar International (SGX: W01) or Bunge Limited (NYSE: BG) could benefit from a rebound in biodiesel demand.
2. Monitor crude oil trends: A Brent price recovery above $70/barrel would strengthen palm oil’s biodiesel appeal.
3. Track regional price disparities: The $100/ton gap between Northeast Asian and North American rapeseed oil prices offers arbitrage opportunities.

The vegetable oil market remains a high-risk, high-reward arena. For now, the palm oil rally has stalled—but the next move hinges on whether oversupply fears or subsidy-driven demand will dominate.