Palm oil prices are expected to rise as the traditional peak season in China approaches

According to spot market data from SunSirs, domestic palm oil prices declined sharply in the first ten days of April. On April 1, the average market price for palm oil was 9,750 yuan/ton; by April 14, the average price had fallen to 9,244 yuan/ton, a decline of 5.19%.

Fundamental support (driven by news): Strengthening correlation in the energy market – the escalation of the conflict in the Middle East led to higher crude oil prices. This highlighted the role of palm oil as a biodiesel feedstock, leading to an increase in the biodiesel premium and directly improving market sentiment in the broader oils and fats sector.

Supply shortage: Palm oil inventories at the end of March amounted to 2.27 million tonnes, a 16.1% decrease from the previous month. Furthermore, Malaysia’s palm oil exports from April 1 to 10 fell by 42.6%, reaching 56.7% compared to the previous period.

Favorable Policy: Expectations surrounding Indonesia’s mandatory use of B50 biodiesel (scheduled for July), coupled with an April export tax increase to $148 per tonne, effectively reduced the amount of palm oil available for trade.

Improving Demand: The second quarter marks the start of the traditional peak season for food service companies. This triggered a wave of restocking by food processors, leading to a resumption of basic, essential demand for oils and fats.

Main Negative Factors (News-Driven): Profit-taking and capital withdrawals – after breaking the RMB 10,000/tonne mark, long positions were liquidated en masse. This led to a reduction in liquidity on the futures exchange and triggered a widespread sell-off; as a result, open interest and trading volume declined throughout the month. A correction in oil prices, driven by expectations of economic easing in the Middle East, weakened the oils and fats sector, thereby reducing the favorable impact of palm oil’s energy properties.

Negative supply-side impact: Growing expectations for increased production in producing regions—Southeast Asia has entered its seasonal production growth period (April to October). In early April, palm oil production in Malaysia increased by 15.63% compared to the previous month (according to SPPOMA). This gradual improvement in supply conditions limited the potential for further price increases. Furthermore, import margins have become negative (inverted)—domestic prices are currently below import costs. This has reduced traders’ willingness to book supplies, leading to insufficient arrivals at ports and additional pressure on spot prices.

In brief: In the second half of April, the fundamental situation in the domestic palm oil market remains a complex mix of bullish and bearish factors. While producing regions have entered a cycle of production growth, leading to volatility in futures markets, the underlying, vital demand for palm oil within China has increased. Consequently, market prices are expected to exhibit mixed trends, fluctuating between gains and losses.

Tags: palm oil, China, prices