The palm oil market is facing downward pressure as a recovery in production coincides with decreasing demand, particularly from price-sensitive consumers. This shift is expected to reduce the premium that palm oil currently holds over its rivals, such as soybean and sunflower oils.
Key Highlights:
Price Trends:
After a significant 20% increase in 2024, pushing palm oil futures to a two-year high, prices are now poised to decline as demand weakens. Benchmark palm oil futures (FCPOc3) are experiencing a loss in market share, especially as top importers like India turn to more affordable alternatives.
Supply Dynamics:
Recent supply disruptions in Indonesia and Malaysia, primarily due to flooding, have contributed to an unusual premium for palm oil. However, as production recovers, inventories are expected to rise, leading to further price reductions. Thomas Mielke, executive director of Oil World, stated, “I expect that stocks will continue to rise if demand is not picking up at these prices.”
Demand Shifts:
Elevated prices have prompted buyers to switch to soybean oil, contributing to potential stock build-up as production increases. India’s palm oil imports for the 2024/25 marketing year could drop to 7.5 million metric tons, the lowest level in five years, according to Sanjeev Asthana, president of the Solvent Extractors’ Association of India.
Production Recovery:
Analysts predict a significant increase in palm oil production post-Ramadan, with Indonesia’s output expected to rise to 50 million metric tons in 2025 from 48.16 million metric tons last year. Malaysia’s production is anticipated to increase slightly to 19.5 million metric tons.
Price Forecast:
Prices for palm oil are expected to stabilize between 3,600 ringgit and 4,100 ringgit ($814.5 to $927.6) per metric ton from April to November, driven by the interplay of rising production and declining demand. The premium of palm oil over soybean oil has already narrowed to $50 per metric ton in India, down from over $100 a month ago.
Biodiesel Impact:
Indonesia’s palm oil exports are projected to decrease by 7.3% to 27.35 million metric tons in 2025 due to increased biodiesel production. The country’s B40 biodiesel program, aimed at reducing diesel fuel imports, is set for full implementation next month, further constraining export availability.