Palm Oil Prices Plunge Amid Ringgit Surge and Weakening Demand

The global palm oil market is navigating turbulent waters in May 2025, as a confluence of currency pressures, shifting demand dynamics, and geopolitical policy shifts sends prices spiraling downward. This week alone, crude palm oil (CPO) futures on the Bursa Malaysia Derivatives Exchange fell over 1%, with prices hovering near the lower end of analysts’ forecasts of 4,000–4,200 MYR per metric ton. The decline underscores a market grappling with oversupply, policy uncertainty, and the strengthening Malaysian ringgit, which has eroded export competitiveness.

The Ringgit’s Role in the Slide

The Malaysian ringgit (MYR) has emerged as a critical wildcard in this downturn. A stronger MYR makes Malaysian exports more expensive for global buyers, a factor that has directly contributed to a 2% decline in palm oil futures over the past month. The currency’s appreciation—a result of improved domestic economic sentiment and capital inflows—has outpaced supply-demand fundamentals, compounding existing pressures.

By May 2, 2025, the MYR had strengthened to 3.856 MYR/USD, up 0.3% from the start of the month. This trend has hit Malaysian exporters hard: a 1% rise in the MYR typically reduces palm oil export revenue by 0.5–0.7%, according to industry analysts. Meanwhile, Indonesia—a key competitor—has moved to counter this advantage by slashing export levies, further squeezing Malaysian margins.

Demand Doldrums and Policy Delays

On the demand side, the outlook is equally grim. Malaysia’s delayed B20 biodiesel mandate, which would blend 20% palm oil into transportation fuel, continues to stall due to political inertia and high CPO prices. This delay has left 1.3 million metric tons of palm oil unallocated for domestic consumption annually, flooding global markets instead.

Meanwhile, Indonesia’s aggressive B40 mandate (40% palm oil in biodiesel), set to take full effect later in 2025, has created a paradox: while it reduces Indonesia’s exportable supply, it also risks oversupply in Malaysia. Oil World’s Thomas Mielke warns that Indonesia’s 2.2 million metric ton production surge in 2025 could spill over into Malaysia, exacerbating the glut.

The Data Behind the Decline

• May 2, 2025 Tender Results: Crude palm oil bids fell 1.39% week-on-week to IDR 13,707/kg in key markets like Franco Kuala Tanjung, reflecting weak buyer sentiment.
• Futures Market: The July 2025 delivery contract (FCPOc3) traded at RM 3,927/MT on May 2, down 3.6% from mid-April levels.
• Competitor Pressure: Soybean oil prices on the Chicago Board of Trade dipped below palm oil in key markets like India, diverting demand to cheaper alternatives.

Looking Ahead: Storm Clouds or Silver Linings?

The path forward remains fraught with uncertainty. On one hand, Indonesia’s B40 mandate could tighten global supply by 2–3 million metric tons in late 2025, potentially lifting prices. On the other, Malaysia’s labor shortages and weather disruptions—such as February’s floods that cut output to a three-year low—threaten to crimp production.

Investors should also watch the POGO spread (palm oil vs. gasoil price differential), which has surged to unsustainable levels, discouraging biodiesel blending in regions like Europe. Without a narrowing of this gap or a resolution to Malaysia’s B20 delays, demand risks remaining anemic.

Conclusion

Palm oil’s May 2025 slump is no accident. A cocktail of currency headwinds, policy paralysis, and global supply imbalances has pushed prices to critical lows. While Indonesia’s B40 policy may eventually tighten markets, the immediate outlook hinges on Malaysia’s ability to stabilize its currency, accelerate domestic demand through B20 implementation, and compete in a world increasingly wary of palm oil’s environmental footprint.

For now, the numbers speak plainly: with futures near RM 4,000/MT and geopolitical risks mounting, the road to recovery will be anything but smooth. Investors would be wise to brace for volatility—and to keep a wary eye on the ringgit.