Palm oil price forms golden cross amid Indonesia DMO worries

Palm oil price regained its momentum this week as the market waited for more information about Indonesia’s domestic market obligation (DMO) that could change the industry.

It also surged after a report pointed to more demand in the industry. Data by TradingView shows that the price of palm oil soared to MYR 4,230 a ton, the highest point since March last year. It has risen by over 33% from its lowest point in 2023.

The biggest factor driving the price of palm oil is the DMO policy by Indonesia, the biggest producer. This policy will focus on how producers export the commodity. Currently, the DMO rule allows companies to supply some of the palm oil only after hitting some of the domestic targets.

Analysts believe that this approach is risky, especially when there is weak foreign market. Therefore, the government is considering changing the approach into by linking it to production instead of exports.

Therefore, palm oil price is rising as the market remains concerned about the future availability of palm oil in the international market. In a note, an analyst said:

“With this policy in place, it looks like supply will be pretty much domestic-driven rather than export-oriented, and could mean that supply availability from Indonesia may be restricted going forward.”

The price of palm oil is also rising as hopes rise that Malaysia, another big producer hinted that its exports will be robust this month. This optimism comes a few weeks after the country said that its exports in January dropped by 11% in January.

Malaysia is mostly selling its palm oil to China and other Asian countries. Two weeks ago, the country announced that it could stop exports to the EU after the bloc unveiled stricter policies aimed at protecting trees.

Meanwhile, palm oil price is also reacting to the developments in Brazil, where the weather is expected to be more drier this year. This dryness could affect the supply of soybeans, a palm oil competitor.

Brazil is currently harvesting a record soybeans crop, which has helped its price crash by more than 25% from its highest point in 2023. If the weather remains dry this year in Brazil, there is a likelihood that palm oil will do well as demand rises.

Palm oil prices have rebounded sharply in the past few months. They have soared from last year’s low of 3,185 MYR to over 4,200. On the daily chart, the price has rebounded above the 23.6% Fibonacci Retracement level. It has also jumped above the key resistance point at 4,190 MYR, its highest point on July 25th.

Palm oil price has also formed a golden cross, where the 50-day and 200-day Exponential Moving Averages (EMA). Therefore, the outlook for palm oil prices is bullish, with the next point to watch will be the 50% retracement at MYR 5,222, which is 23% above the current level.

Tags: Indonesia, EU, Malaysia, palm oil, Market, demand, price