Rising Malaysian Palm Oil Futures Amid Rival Edible Oils and Currency Dynamics

The global vegetable oil market in 2025 is a battleground of shifting dynamics, where Malaysian palm oil futures are rising amid a complex interplay of rival oils, currency volatility, and production constraints. For investors, this presents both challenges and opportunities. Strategic positioning requires a nuanced understanding of how these forces intersect—and how to leverage them for long-term gains.

The Edible Oil Rivalry: Soybean, Rapeseed, and the Palm Oil Price Premium

Malaysian palm oil's competitiveness has been bolstered by divergent regional fundamentals. While soybean oil prices in the U.S. and China have fluctuated due to biofuel demand and supply constraints, palm oil has maintained a pricing edge. In April 2025, palm oil traded at a 12% discount to soybean oil, a critical threshold that spurred a rebound in Indian imports. This discount, coupled with weaker rapeseed output in China and India, has allowed palm oil to capture market share in blended oil formulations.

However, this advantage is not without risks. Brazil's record 2025 soybean harvest of 150 million metric tons (MT) has depressed global soybean oil prices, intensifying competition. Investors should monitor the soybean-palm oil price differential closely. A narrowing spread could signal overbought conditions in palm oil futures, while a widening discount may indicate undervaluation.

Currency Dynamics: The Malaysian Ringgit's Double-Edged Sword

The USD/MYR exchange rate is a critical lever for Malaysian palm oil competitiveness. As of July 2025, the rate stands at 4.23, reflecting an 11.16% appreciation over the past year. A stronger ringgit increases the cost of Malaysian exports, reducing its price advantage over U.S.- and China-priced oils. Conversely, a weaker ringgit could boost exports by 10–15%, as seen during the 12.5% MYR depreciation in 2023, which drove a 30% stock surge for IOI Corporation (IOI) and Sime Darby Plantation (SIME).

Investors should hedge against ringgit strength using forward contracts or MYR-denominated debt. A sustained decline to 4.30+ could create undervalued entry points for palm oil futures or ETFs like iShares MSCI Malaysia (EWM).

Production Constraints and Sustainability: The New Supply Equation

Global palm oil production in 2024/25 is projected to grow by just 2.3 million MT, far below the double-digit expansions of the 2010s. Aging plantations, replanting delays, and El Niño-driven droughts are capping output. Indonesia's B40 biodiesel mandate has further tightened supply by diverting 40% of crude palm oil (CPO) to domestic use, reducing exportable surplus.

Meanwhile, Malaysia's focus on sustainability—3.86 million hectares under MSPO certification—positions it to capture premium pricing in ESG-conscious markets like the EU. Companies with robust replanting programs and high MSPO certification, such as Sime Darby Plantation, are better equipped to navigate regulatory scrutiny and secure green market premiums.

Strategic Positioning for Investors

1. Long Palm Oil Futures with a Regional Lens: Focus on Asian markets, where biodiesel mandates and import policies drive demand. The EU's shift away from palm oil (from 18% to 3% of biodiesel by 2034) contrasts with Indonesia's B40 and Malaysia's export-driven B30 strategies.
2. Hedge Currency Exposure: For Malaysian producers, hedging against MYR strength is critical. Consider equity positions in IOI Corporation or Sime Darby Plantation, which offer exposure to both production and sustainability-driven valuations.
3. Monitor POGO Spread and Crude Oil Prices: The POGO (Palm Oil–Crude Oil) spread at mid-2025 levels of $75–80 per barrel makes palm-based biodiesel marginally competitive. A rise in crude prices above $85/bbl could narrow the spread, boosting palm oil demand.

Conclusion: Navigating Asymmetries in a Complex Market

Malaysian palm oil's unique position at the intersection of supply inelasticity, policy-driven demand, and currency dynamics offers asymmetric value for investors. While global production constraints and geopolitical tensions introduce volatility, the interplay of regional mandates, currency fluctuations, and sustainability transitions creates opportunities for those who act strategically.

For investors, the key lies in balancing short-term hedging with long-term positioning in Asian markets. By monitoring the POGO spread, currency trends, and regional policy shifts, investors can capitalize on palm oil's resilience amid a shifting global edible oil landscape.