Palm Oil Prices Under Pressure as Rival Oils Gain Momentum at Dalian and Chicago

The palm oil market faces significant headwinds as weakening demand, trade disputes, and competitive dynamics from rival oils like soybean and rapeseed (canola) weigh on prices. Recent data from the Dalian Commodity Exchange (DCE) and the Chicago Board of Trade (CBOT) highlight a bearish trend for palm oil, driven by a confluence of macroeconomic and supply-side factors.

Current Price Dynamics: Palm Oil Slips While Rivals Rally

Palm oil futures on the DCE have declined from 8,802 yuan/ton in March 2025 to 8,616 yuan/ton by early May, reflecting growing pessimism. Technical indicators suggest further downside risks, with support levels at 8,496 yuan/ton and resistance at 8,798 yuan/ton. Meanwhile, soybean oil prices at Dalian have risen to 7,982 yuan/ton, capitalizing on palm oil’s struggles and supply constraints from Black Sea rapeseed shortages.

At the CBOT, soybean oil prices remain resilient, supported by strong U.S. corn exports and South American weather concerns. Soybean oil futures hover near $50/bushel, while rapeseed oil (via proxy markets) faces downward pressure due to U.S. tariffs on Canadian imports.

Key Drivers of Palm Oil’s Decline

1. Trade Tensions and Geopolitical Risks
   U.S.-China trade disputes have disrupted palm oil exports, with Beijing’s retaliatory tariffs reducing demand. Additionally, the 100% Chinese tariff on Canadian rapeseed oil has redirected trade flows toward soybean oil, further squeezing palm oil’s market share.

2. Weak Biodiesel Demand
   Crude oil prices have dipped to $80/barrel, reducing incentives for biodiesel production—a key driver of palm oil demand. Indonesia’s B40 biodiesel mandate (40% palm oil content) struggles to gain traction due to high production costs, limiting price support.

3. Competitive Pressure from Soybean and Rapeseed Oils
   Soybean oil prices are bolstered by strong U.S. soybean demand, while rapeseed oil benefits from EU supply tightness. COCERAL forecasts 19.22 million tons of EU rapeseed production in 2025, but this remains below pre-pandemic levels, keeping prices elevated.

Market Outlook: Bearish Momentum Likely to Persist

Analysts project palm oil prices could test 8,400 yuan/ton on the DCE if macroeconomic risks escalate. Key risks include:- U.S.-China trade negotiations: A failure to resolve tariffs could prolong palm oil’s export slump.- Crude oil volatility: A rebound in crude could revive biodiesel demand, but current trends favor weakness.- Weather impacts: Southeast Asian floods and South American droughts may disrupt palm and soybean output, respectively.

Investment Implications

Traders should consider:- Shorting palm oil futures at the DCE or CBOT’s palm oil proxies.- Going long on soybean oil (CBOT) or rapeseed oil (Euronext), given their relative strength.- Monitoring technical levels: A break below 8,496 yuan/ton on the DCE could trigger further declines.

Conclusion

Palm oil’s bearish trajectory is firmly entrenched, with rival oils capitalizing on trade disruptions and supply imbalances. While a 12-month forecast of 4,144 MYR/MT for palm oil provides a theoretical baseline, current fundamentals suggest prices could fall further. Investors must closely track U.S.-China trade developments, biodiesel policy changes, and weather patterns in key production regions. For now, the palm oil market remains in a defensive posture, with no clear catalyst to reverse the downward trend.

Final Word: The palm oil sector faces a prolonged period of adjustment as soybean and rapeseed oils dominate global demand. Until macro risks subside or biodiesel mandates gain traction, traders should prioritize caution and favor rival oils in their portfolios.