Palm Oil Prices Under Pressure as Output Rises and Soy Oil Premium Holds

The global edible oil market is at a crossroads, with palm oil prices sliding under the dual weight of rising production expectations and a weaker soy oil market. While palm oil’s recovery in key producing nations like Malaysia and Indonesia signals supply growth, soy oil’s premium over its tropical counterpart remains intact due to supply bottlenecks and trade policy shifts. Investors must weigh these dynamics carefully to navigate a market where overproduction risks and geopolitical volatility could tip the balance.

The Palm Oil Production Surge

Malaysia’s palm oil output in early April rose 9% month-on-month, driven by favorable weather and improved harvest efficiency. This follows Indonesia’s March production hitting 4.57 million metric tons—a 3.3% increase from February—bolstering the 2024–25 global production forecast to 80.34 million metric tons. Analysts warn, however, that a “steep production spike” could flood markets, potentially pushing prices below the critical RM3,900/ton threshold ($889/ton).

The reveal a 7% decline since early 2025, reflecting investor anxiety over oversupply. Malaysia’s gains are particularly concerning: sustained growth there could exacerbate downward price pressure, as its output accounts for roughly 30% of global supplies.

Soy Oil’s Tightening Supply Chain

Despite palm oil’s struggles, soybean oil retains a $50/ton premium over its tropical rival, fueled by a perfect storm of supply constraints. U.S. soybean inventories are at decade lows, with Argentina’s drought-stricken harvest and Brazil’s delayed crop exacerbating shortages. Meanwhile, European soy oil prices have surged due to robust biodiesel demand and limited alternatives, as shows a 12% jump since January.

Trade policies further complicate the outlook. New U.S. tariffs on Canadian rapeseed and restrictions on Chinese used cooking oil (UCO) imports threaten to disrupt feedstock flows, diverting demand back to soy oil. This policy uncertainty has become a key risk for investors, as it could prolong soy’s premium unless logistical bottlenecks ease.

Key Risks and Investment Implications

The market faces two critical uncertainties:
1. Malaysian Overproduction: If Malaysia’s output exceeds current forecasts, palm oil prices could slip below RM3,800/ton—a level that would squeeze margins for producers and further weaken prices.
2. South American Weather: El Niño conditions could prolong droughts in Argentina and Brazil, deepening soy supply deficits and propping up soy oil prices.

Investors should monitor Malaysian monthly production reports and South American weather forecasts closely. For now, the soy oil premium appears secure unless U.S.-China trade relations stabilize or Canadian rapeseed exports rebound.

Conclusion: A Delicate Balance

The palm oil market’s recovery is real but precarious. While production gains in Malaysia and Indonesia are positive for global supply, the risk of oversupply looms large. Meanwhile, soy oil’s premium is a testament to enduring supply challenges and policy uncertainty.

The data paints a clear picture: with global palm oil production at 80.34 million tons and prices hovering near RM3,900, the market is finely balanced. A 1% deviation in Malaysian output or a 5% shift in U.S. soy inventories could send prices spiraling. Investors should favor a hedged approach, perhaps allocating to palm oil futures while maintaining exposure to soy oil-linked equities. In this volatile landscape, agility—and an eye on the weather—will be key to navigating the next quarter.