Soyoil and Crude Oil slide due to insufficient underlying indicators
In the global market, Malaysian palm oil prices have taken a hit, with the benchmark palm oil contract for September delivery on Bursa Malaysia Derivatives Exchange losing 16 ringgit, closing at 3,970 ringgit a metric ton. This drop in prices, relative to rival edible oils and crude oil, is influenced by a complex interplay of factors.
Firstly, Malaysia's domestic palm oil production and inventories have seen a significant increase. In May 2025, stocks reached an eight-month high of 1.99 million tonnes, up 6.65% from the previous month, while production rose by 5.05% to 1.77 million tonnes. This oversupply has exerted downward pressure on palm oil prices, leading to a significant price drop.
To counteract the price slump, the Malaysian government lowered the palm oil export duty from 10% to 8.5% in late June. This move aims to make Malaysian palm oil more competitive internationally and encourage shipments, helping manage the inventory glut and stabilize prices.
The price trends of competing edible oils like soybean oil and sunflower oil also play a role. Recently, Asian soybean oil prices weakened, putting additional downward pressure on palm oil. Conversely, some rises in U.S. soybean oil prices provided modest support. Sunflower oil's price movements also factor into this competitive dynamic.
Crude oil prices indirectly affect palm oil because palm oil is used in biofuel production. While crude oil price movements create volatility, the current scenario suggests a delicate balance. Despite oversupply, expected biofuel demand, partly driven by El Niño-induced weather disruptions, could tighten supplies in the latter part of 2025. However, this has not yet translated into a sustained price rally.
Malaysian palm oil prices are also sensitive to the ringgit's strength and global trade developments. The lack of progress on new trade deals has limited price upside, while favorable currency movements may partially support prices but have not offset oversupply pressures.
In summary, the recent drop in Malaysian palm oil prices is primarily driven by domestic oversupply and high inventories, compounded by weakening prices of competing oils in Asia and moderated by government export duty cuts. The influence of crude oil prices and biofuel demand remains a potential factor for future price recovery but has not yet reversed the current downtrend.
As the market awaits clearer fundamental signals, the strengthened ringgit makes palm oil more expensive for buyers holding foreign currencies. Oil prices, meanwhile, remained steady on Tuesday.
Trading in commodities like palm oil has become more challenging due to the surge in sports (oversupply) of the product in Malaysia. To cope with the price fall, the Malaysian government is aiming to increase the competitiveness of its palm oil in the global market by reducing the export duty, trying to stimulate more trading. At the same time, the price trends of competing edible oils, such as soybean oil and sunflower oil, and the volatility in crude oil prices due to their use in biofuel production, continue to shape the competitive landscape of the commodities trading market.
