Malaysian palm oil reaches two-week high amid record inventory and export growth

On Tuesday, October 13, the benchmark December palm oil contract on the Malaysian Derivatives Exchange closed at RM4,682 per ton, up by RM45 from the previous trading day, or 0.97%, marking the highest close since September 24, equivalent to approximately $1,146.43USD/ton. The contract initially declined but reversed early losses as buying interest returned. The backdrop includes Malaysia’s September inventories rising to a record high; however, traders are more focused on tightening supply in 2027 and expanding Indonesian biodiesel demand, with future supply risks temporarily outweighing current inventory accumulation pressures.

Malaysia's inventory hits record high, negative factors have already been priced in

According to data from the Malaysian Palm Oil Board, palm oil inventories surged to 3.51 million metric tons in September, with production also hitting a record high, exceeding market expectations. Cheang Kang Wei, an agricultural analyst at StoneX in Singapore, noted that the bearish inventory figures were already priced in, as the market weakened ahead of and around the release of the Malaysian Palm Oil Board data. He believes the key question now is whether inventories will continue to rise in October; while stock levels may remain elevated, the rate of inventory accumulation should begin to slow.

Cheang added that if exports remain above 1.5 million tons while production stabilizes at around 2 million tons, inventory growth should begin to slow starting in November. However, if demand is disappointing and production remains near record levels, inventories could stay above 3.5 million tons for a longer period, continuing to pressure prices. This condition implies that the current market pricing does not ignore high inventories but is instead pricing in the expectation that the rate of inventory growth may have peaked. If exports or production subsequently deviate from these trajectories, the downward pressure logic will revert to the nearby months.

Maritime survey agencies estimate that Malaysia’s palm oil product exports from October 1 to 10 increased by 33.5% to 37.7% month-over-month. This rise provided direct support to prices and partially alleviated pressure from September’s record-high inventories. Cheang noted that the market is increasingly looking beyond current stock levels and focusing instead on potential supply risks in 2027, including the lagged impact of El Niño and rising biodiesel demand in Indonesia under B50. In other words, recent export improvements offer tangible support, while long-term supply and policy-driven demand contribute an expectation premium. If B50 is implemented smoothly, domestic consumption in Indonesia could divert part of export supply; if El Niño significantly affects 2027 production, the global palm oil balance sheet could tighten. However, these factors remain long-term variables, and near-term prices will still be validated by inventory and export data.

Crude oil weakened as traders assessed supply risks from Saudi Arabia while weighing the prospect of additional Russian diesel supplies. The decline in crude oil reduced the attractiveness of palm oil as a feedstock for biodiesel, restraining biodiesel demand. Among competing oils, the most active soybean oil contract on Dalian fell 0.65%, while the palm oil contract dropped 0.77%; soybean oil on the Chicago Mercantile Exchange rose 0.55%. Palm oil competes with other edible oils for global vegetable oil market share, so its price movement continues to track related oils. In terms of exchange rates, 1 USD = 4.0840 MYR. The divergence between crude oil and competing oils explains why palm oil, despite support from export and forward supply factors, failed to sustain an upward trend.

Next, the market will focus on three key developments: whether October’s total exports can remain above 1.5 million tons; whether inventory growth in October slows as Cheang anticipated; and the implementation details of Indonesia’s B50 policy alongside the progression of El Niño. If exports continue double-digit growth while production does not set new records, the inventory turning point expectation may accelerate, shifting the trading focus toward a tight balance in 2027. If demand falls short of expectations and production remains high, inventories above 3.5 million tons will once again pressure nearby contracts. The current main theme is the tug-of-war between high current inventories and future supply risks, with prices remaining highly sensitive to export, production, and policy signals.

1. Why did palm oil fall first and then rise on October 13?

Early trading was pressured by record September inventories, but the market later shifted focus to 2027 supply risks, demand for Indonesia’s B50, and strong exports in early October, driving the market to recover its losses and close at a two-week high.

2. Has the bearish impact of the 3.51 million ton inventory in September been fully priced in?

StoneX believes that the market has already weakened ahead of and after the data release, and the bearish inventory position has largely been absorbed; however, whether inventory will continue to build in October remains critical, as levels may still remain elevated.

3. How important is export growth?

Exports increased by 33.5% to 37.7% month-over-month from October 1 to 10. If monthly exports remain above 1.5 million tons, combined with stable production of approximately 2 million tons, the pace of inventory accumulation may slow starting in November.

4. What forward-looking factors support the price?

El Niño's lagged impact may threaten 2027 yields, while Indonesia's B50 increase in domestic biodiesel demand could compress export supply, together forming a forward risk premium.

5. Why Didn’t the Drop in Crude Oil Crush Palm Oil?

Weak crude oil reduces the appeal of palm oil as a biodiesel feedstock, but the current focus is on improved future supply and exports, with differentiated competition among oils limiting the downside.