Palm Oil's Weekly Gain Momentum Amid Soyoil Strength and Supply Concerns

The vegetable oils market is at a critical inflection point, with palm oil prices stabilizing between RM3,750–4,050 in May 2025 as technical and fundamental forces converge. A perfect storm of soybean oil’s weekly gains, Malaysia’s supply dynamics, and biodiesel demand is creating a compelling case for investors to position now. Here’s why this could be the moment to act.

The Soybean Oil Surge: A Catalyst for Palm Oil’s Momentum

Soybean oil futures on the CBOT have surged to $1,054/mt in May, up $33/mt from late April, driven by tightening U.S. supplies and improving trade signals. NOPA data revealed U.S. soybean oil stocks fell to 1.498 billion pounds—a 19.1% year-over-year decline—as crush volumes lagged expectations. This scarcity has spilled over to palm oil markets, reducing substitution pressures and lifting palm’s relative valuation.

The correlation between soy and palm oil prices is undeniable. When soy climbs, palm often follows due to their roles as competing cooking oils. A would show this relationship clearly. Investors should note that palm oil’s recent $926/mt price—though down from April highs—now trades at a discount to soy, a technical sweet spot for buyers.

Malaysia’s Supply Buildup: A Temporary Headwind

Malaysia’s palm oil inventories hit 1.87 million metric tons in April—a 19.4% monthly jump—due to record production (1.69 million mt) and weaker exports. This has stoked fears of oversupply, but the data masks a deeper truth: this inventory peak is fleeting.

Production is set to rise further through September due to a “high base effect,” but demand will soon catch up. India’s import duty adjustments in May—which cut palm oil’s effective duty by $15 vs. soy—alongside China’s narrowing price gap with soy (down to $51/mt in May from $260 in December) are priming imports to rebound. By June, palm oil’s seasonal demand peak could trigger a sharp drawdown in stocks, pushing prices higher.

Biodiesel Demand: The Long-Term Bull Case

The real game-changer is biodiesel’s ascendancy. Indonesia’s B40 mandate—mixing 40% palm oil into diesel—will divert 1.2 million mt annually from exports to domestic use, tightening global supplies. Meanwhile, the POGO spread (palm vs. gasoil) surged to $164.8/mt in 2024, signaling palm’s cost competitiveness for biodiesel makers.

Crude oil prices, though stagnant, remain a wildcard. A $10/barrel rise in crude could boost biodiesel demand by 5–8%, as blending becomes more profitable. With OPEC’s output decisions and U.S. shale dynamics clouding the outlook, this volatility could favor palm’s stability in a volatile energy landscape.

Technical Momentum: A Bottom in Sight

Palm oil’s price action confirms a buying opportunity. The RM3,700–4,000 range has acted as both support and resistance since early 2025. Recent consolidation here suggests a base formation, with weekly RSI readings moving out of oversold territory.

A would highlight this setup. Breakouts above RM4,050 could trigger a sprint toward RM4,500, while a breach below RM3,700 would signal deeper weakness. Given the fundamentals, the former scenario looks more likely.

Why Act Now?

The stars are aligning for palm oil:
1. Soy’s strength reduces competition, boosting palm’s relative value.
2. Malaysia’s inventory peak is temporary, with demand poised to shrink stocks.
3. Biodiesel mandates are structural tailwinds, while crude’s volatility adds upside risk.

Risks remain—U.S. tariffs and weather disruptions could delay the rally—but the risk/reward is skewed bullish. With prices near multi-year lows and fundamentals improving, this is a once-in-a-year entry point.

Investment Strategy

• Buy BMD Palm Oil futures (e.g., KOU2025) targeting RM4,500, with stops below RM3,700.
• Consider a long spread (palm vs. soy) to profit from narrowing price gaps.
• Monitor Indonesia’s B40 rollout and China’s import data for confirmation of demand recovery.

This is no time to wait. The convergence of soy strength, supply discipline, and biodiesel demand is a rare alignment—act now before the rally leaves you behind.

Data sources: Malaysian Palm Oil Council (MPOC), CME Group, Intertek, and industry forecasts.