Palm oil under pressure as inventory piles up with rising supply, say analysts

Palm oil production may begin picking up in July on seasonal strength, potentially taking the air out of an expected swell in prices from temporary spike in demand to beat US tariffs, analysts said.

After a dip in June, output is expected to rebound as harvesting ramps up towards the peak season from favourable weather conditions. The rise in production is expected to expand inventory in Malaysia by about 6% in July after hitting an 18-month high in June, said CIMB Securities.

“Production is projected to be higher owing to more harvesting days,” while exports have already shown a positive start in July, the house said.

Exports of palm oil from Malaysia, the world’s largest palm oil producer after Indonesia, has risen 5.3% from June in the first 10 days of July, according to data from cargo surveyor Intertek Testing Services. Production typically strengthens month-on-month before peaking in October or November.

The market was caught off guard earlier this week when US announced a 25% import tariff on all Malaysian goods. Indonesia meanwhile was slapped with 32% tariffs, raising the cost of palm oil for US buyers and prompt a shift towards cheaper domestic alternatives such as soybean oil.

“Ahead of the tariff hike, buyers may consider front-loading purchases to take advantage of the current lower 10% tariff rate on US imports from Malaysia,” CIMB Securities said.

Prices of the edible oil used in everything from lipstick to diesel have climbed above RM4,000 per tonne mark this month after gaining 12% from its lows in May.

Price-sensitive markets, particularly major importer India, are now showing “signs of caution, with buyers adopting a wait-and-see approach”, said Phillip Securities. That may keep prices range-bound, the house said.

“While short-term support may come from restocking and relative pricing competitiveness, we remain cautious heading amid heightened market volatility, rising input costs, and broader macroeconomic risks, including potential trade disruptions,” the house added.