Malaysian palm oil prices fall nearly 2% amid record stockpiles

Malaysian palm oil futures fell nearly 2% on October 27, extending losses for a second consecutive trading session. Prices came under pressure from record-high domestic palm oil inventories and declining vegetable oil prices on China’s Dalian exchange. January palm oil futures on Bursa Malaysia Derivatives dropped by 87 ringgit, or 1.82%, to MYR 4,702/t ($1,151.04/t).

Additional pressure on the Malaysian market came from falling prices of competing vegetable oils. On the Dalian exchange, the most-active soyoil contract declined by 2.62%, while palm oil futures lost 3.54%. Meanwhile, soyoil futures on the Chicago Board of Trade (CBOT) fell by 0.42%. As palm oil competes with other vegetable oils in the global market, price movements in these products directly influence Malaysian palm oil futures.

According to LSEG Agriculture Research, palm oil prices received support in October from concerns over the potential impact of El Niño on production and stronger domestic demand in Indonesia under its biodiesel program. However, record-high inventories in Malaysia are limiting the potential for further price increases. In September, the country’s palm oil stocks rose to 3.51 mln tons amid record production, exceeding market expectations.

Meanwhile, export demand for Malaysian palm oil has increased significantly. According to estimates from cargo surveyors, exports of Malaysian palm oil and related products during October 1–25 rose by 46.9–67.7% compared with the same period in September. Stronger overseas shipments are providing some support to the market but have so far failed to offset pressure from substantial domestic inventories.

Crude oil price movements remain another important factor for the palm oil market, affecting its competitiveness as a feedstock for biodiesel production. After falling by approximately 1% earlier in the session, crude oil prices recovered amid mixed signals regarding developments in the Middle East. Meanwhile, the Malaysian ringgit weakened by 0.05% against the US dollar, making palm oil slightly cheaper for foreign buyers. Despite support from exports and the biofuel sector, elevated inventories continue to limit price gains.

Tags: Malaysia, palm oil