According to the Malaysian Palm Oil Council, the country's palm oil inventory plunged to 1.58 million tonnes in January 2025, the lowest in 21 months, despite a 13% drop in exports and a sharp 133% increase in imports from Indonesia. Notably, the country has been experiencing a year-on-year production decline since September 2024, with the decline becoming more pronounced in January, hitting a 21-month low of 1.23 million tonnes. MPOC noted that the ongoing weak production remains the key factor behind the decrease in exports. In January, Malaysia exported 95% of its palm oil production.
Looking ahead, MPOC believes the palm oil inventory is unlikely to improve in February, as the shorter month typically sees both production and exports decline while consumption remains stable ahead of Ramadan. The commodities fundamentals have strengthened following Malaysia's Palm Oil Board's supply and demand data release on 10th February, which indicated demand higher than supply.
Meanwhile, India's palm oil inventory is set to reach critically low levels in February due to weak imports over the past two months. The combined import volume for December 2024 and January 2025 was around 800,000 tonnes, well below the country's average monthly domestic consumption requirement of 800,000 tonnes. As a result, MPOC if view that the demand from India is expected to rise in late February or March, potentially driving palm oil prices higher.
February is a crucial month for US farmers as they decide between planting soybeans or corn for the upcoming season. The soybean-to-corn price ratio is a key factor in US farmers' decision making. Historically, the soybean-to-corn price ratio averaged at 2.5, meaning soybean prices are 2.5 times higher than corn prices. If the price ratio drops below 2.5, farmers tend to favour planting corn over soybeans, leading to a reduction in soybean acreage. In January 2025, this ratio fell to 2.1, down from 2.8 a year ago. This signals that US farmers are more likely to plant corn over soybeans in the upcoming planting season in May.
Globally, sunflower oil prices remained relatively stable in January and February, trading above USD1,200 per tonne due to supply tightening as Russia and Ukraine front-loaded their sunflower oil exports in November and December 2024. Sunflower oil prices are expected to strengthen further against palm oil and soybean oil in the coming months. In price sensitive markets such as Egypt and India, consumption is likely to favour palm oil and soybean oil.
MPOC said palm oil prices are projected to reach RM4,850 before retreating in the coming weeks adding that the price rally will be supported by recovering palm oil imports from India, as well as rising soybean oil and sunflower oil prices. Additionally, recent policy changes in the US and Indonesia have also impacted the market. The US has removed imported UCO from its biofuel supply chain and imposed a 25% import tariff on Canadian canola oil starting March. This is expected to drive the demand for US soybean oil as a source of biodiesel feedstock. Meanwhile, Indonesia's decision to restrict UCO and palm residue exports to support its biodiesel program is expected to boost export supply of palm oil as peak production season approaches, which may cap further price rally.
Today, after hitting the high near 24,000 in the early session and entering bearish positions, the index fell sharply by nearly over 600 points, immediately recouping yesterday's losses significantly.
Moreover, today it broke the new high again, reaching a maximum of 24,076, but by the end of the market, it fell back by about 70 points, producing a bearish candle. The current trend has not yet been broken, but from the previous low until now, it has risen close to 6,000 points. It is believed that those with positions can continue to hold until there is a clear trend reversal for profit-taking. Those without positions can wait for a pullback to get in. Actually, it is hoped for a quick pullback, as it allows for entry and also provides a healthy breath.
Currently, the outlook remains the same as before. It is believed that even if there is a pullback, it shouldn't be too deep. However, if Futures fail to stabilize and close below 22,350, there may still be room for decline. The chance of Futures falling below 21,400 in the short term should be low, so it is considered that if a significant pullback occurs, it presents a good opportunity to incrementally go long. Recently, there has been a consistent approach to not hold positions overnight, only focusing on immediate trades, as there is no high chasing and no casual short selling.
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