IG foreign exchange analysis: Palm oil market supported by international situation and production

On Thursday (April 2), the main palm oil futures contract (for delivery in June) on the Malaysian Derivatives Exchange closed at 4,794 ringgit per ton, up 25 ringgit, or 0.52%. The correction in the previous trading day was digested by today's buying. Under the dual effects of international geopolitical factors and supply tightening expectations, the overall market sentiment turned cautious and strong.

International geopolitical factors become a short-term swing hammer, and the prospect of negotiations affects emotions

Behind the disk fluctuations, the direction of the international geopolitical pattern has become the most uncertain variable at present. According to IGforeign exchange marketParamalingam Supramaniam, director of Pelindung Bestari, a broker based in Selangor, noted that uncertainty in the signals from the parties involved made it difficult for traders to judge whether the situation was easing or escalating further. This uncertainty translates directly into a hedging premium for palm oil, which will become more attractive as a biodiesel feedstock if the crude supply chain is disrupted.

The performance of the crude oil market today confirms this logic. Affected by international geopolitical factors, crude oil prices rose significantly in a single day, and the market's concerns about supply disruptions have once again increased. The strengthening of crude oil directly boosted the economy of the biodiesel route, and palm oil received external support as an alternative raw material. At the same time, the ringgit depreciated by 0.3% against the US dollar, further enhancing the attractiveness of palm oil to overseas buyers from the perspective of denomination currency.

The production inflection point signal is looming, and the month-end inventory estimate is tightened

On the fundamentals, the supply side is sending out more noteworthy signals. According to current production data, production rose only slightly in March, far from the level expected for a seasonal recovery. Supramaniam forecasts that Malaysian palm oil inventories will fall in the range of 2 million to 2.20 million tons at the end of March. This level provides clear support in the current demand environment, where the production curve is gradually but steadily declining.

Traders will keep a close eye on agencies' production tracking and export forecasts ahead of the release of official supply and demand data for March by the Malaysian Palm Oil Board on April 10. IG FX analysts believe that if actual inventories fall at the lower edge of the above range, the current price structure could be further strengthened.

Competitive vegetable oil trends diverge, Dalian soybean oil drags down regional sentiment

The external vegetable oil market had mixed results today. The main soybean oil contract on the Dalian Mercantile Exchange fell 0.48%, while the palm oil contract closed down 0.28% simultaneously, reflecting the pressure on regional vegetable oil prices due to weak demand expectations in the Chinese market. In contrast, CBOT soybean oil recorded a 1.62% increase, and the trend of the US and Asian markets contrasted.

As a price follower in the global vegetable oil trading system, palm oil maintains a high price comparison linkage with soybean oil, sunflower oil and other varieties. If the current weakness in the Dalian market continues, it will limit the upside of BMD palm oil to a certain extent. However, judging from today's disk performance, the combined force of international geopolitical factors and supply tightening is enough to offset external price comparison pressure.

Indonesia's B50 policy is imminent, and the increase in biodiesel demand is clear

The latest assessment by the Indonesian Palm Oil Association shows that after the full implementation of the B50 palm oil-based biodiesel program, the country's biodiesel feedstock demand is expected to reach about 15 million tons in 2026, an increase of 2 million tons from the previous year. This increase is equivalent to the annual output of a medium-sized producing area, and the impact on Indonesia's domestic supply and demand balance will be structural.

It is worth noting that the B50 policy means that Indonesia will further compress the supply of palm oil exports. In the context of production growth in major global producing regions entering a bottleneck period, the rigid expansion of domestic consumption in Indonesia will exacerbate the supply tension in the international market. This logic is superimposed with the current signal of weak short-term production.

In the short term, the direction of the international geopolitical pattern will remain the core variable of near-end transactions. IG foreign exchange analysis pointed out that if the situation is expected to ease and heat up, there is a risk of the current geopolitical premium on the disk; but even if the relevant factors subside, the fundamental combination of low production in March and tightening inventories at the end of the month can still provide bottom support for the market. The final confirmation of MPOB data on April 10 will become a key node to verify the current supply judgment.

Frequently Asked Questions

Why do international geopolitical factors affect palm oil prices?

There is a clear transmission mechanism between palm oil and crude oil through the biodiesel channel. International geopolitical factors push up crude oil prices, which will boost the economics of palm oil as a biodiesel feedstock, thereby stimulating demand. In addition, uncertainty itself will prompt some funds to look for alternative assets, and palm oil futures, as a highly liquid commodity contract, are vulnerable to such emotional premiums.

Q2: What are the signals from Malaysia's March production data?

March is usually the month when palm oil production transitions from a period of low production to a period of increased production. But the current data show only a slight increase, well below the normal seasonal recovery. This means that production areas may face constraints such as labor, tree age structure or weather. If this trend continues in April, it will mean that the available supply for the whole year is under downward pressure.

Q3: What does a month-end inventory level of 2 million to 2.20 million tonnes mean?

This inventory range is neutral and tight. In comparison, inventories in the same period in 2025 are about 2.30 million to 2.50 million tons. Inventories are lower than in the same period last year and demand remains stable, forming fundamental conditions for price increases. If the actual MPOB data falls near 2 million tons, it may trigger a reassessment of the market's tight supply.

Why is the decline in Dalian soybean oil worth paying attention to?

Dalian soybean oil reflects import crushing profits and end point consumption in the Chinese market. China is the world's largest importer of vegetable oils, and changes in its demand directly affect international palm oil trade flows and prices. Continued weakness in the Dalian market means that Chinese buyers may be less willing to purchase or switch to cheaper alternative oils, which poses hidden pressure on BMD palm oil.

Q5: What is the impact of Indonesia's B50 policy on the international palm oil market?

Indonesia is the world's largest producer and exporter of palm oil. According to IG's foreign exchange market analysis, the B50 policy means that about 15 million tons of palm oil will be used for domestic biodiesel production each year, an increase of 2 million tons from the previous year. This increase of 2 million tons is almost equivalent to Malaysia's exports in one month. As domestic consumption continues to squeeze the supply available for exports, international buyers will face a tighter supply environment, which will create a long-term upward effect on the price hub.