Will Bullish and Bearish Factors Hinder Palm Oil Price Growth?

According to AmSpec Agri, Malaysia's palm oil exports from March 1st to 31st increased by 29% year-on-year. The robust export data has boosted investor sentiment, leading to a rise in palm oil prices.

The continuous negative soy-palm oil spread indicates an ongoing increase in substituting palm oil with soybean oil. Soybean oil, due to its nutritional value and functional properties, is generally priced higher than palm oil. However, when this price spread is negative, it means that soybean oil is priced lower than palm oil. As the negative soy-palm oil spread deepens, the cost-effectiveness of soybean oil improves, and some of the demand for palm oil has been replaced by soybean oil. With the soybean oil market expected to relax marginally in the future, the competitiveness of soybean oil against palm oil is projected to continue rising, and soybean oil is anticipated to exert downward pressure on palm oil prices.

After the end of Ramadan in April, there is typically a certain demand for stock replenishment in countries like India. If this demand for restocking is lower than anticipated, there may be insufficient upward momentum for Malaysian palm oil prices. In China, commercial palm oil inventories are slowly decreasing, but spot market transactions remain sluggish. Recent elevated prices offered by foreign suppliers have resulted in a negative import profit margin; thus the volume of imports in the near term is reduced.

Soybean oil is one of the main substitutes for palm oil. A decline in soybean oil production can lead to an increase in its price, which can boost demand for palm oil. Consequently, the price of palm oil may also trend upward.

Currently, looking at major soybean-producing areas, Brazil's harvest progress has slowed down. Conab data shows that the overall soybean harvest progress in Brazil has reached 66.3%, which is lower than the level during the same period last year, and the slowdown in harvest progress is affecting supply. In the long term, an increase in the U.S. soybean supply may put pressure on crude palm oil prices in the third quarter. The U.S. soybean harvest typically coincides with the peak season for palm oil from August to October.

Due to expectations of tightened supply from OPEC+ production cuts, attacks on Russian refineries, and optimistic Chinese manufacturing data supporting the prospect of demand improvement, crude oil prices have continued their recent upward trend. The strengthening of crude oil prices has made palm oil a more attractive option as a feedstock for biodiesel production. Palm oil is a key ingredient in the production of biodiesel. When crude oil prices rise, the cost of fossil fuels increases, making biofuels relatively more cost-effective, potentially leading to increased demand for palm oil.

SPPOMA data indicates that Malaysia's palm oil production in March rose by 15.87%, with output expected to recover gradually during the increased production season. However, the disruptions of Ramadan are not yet fully over. Continuous declines in rainfall in Malaysia have raised concerns about future production levels. As April marks the start of the palm oil growth season and the end of Ramadan, efficiency in production recovery is expected to improve.