Malaysian palm oil futures continued their upward trajectory on Wednesday, extending a three-day winning streak, as production concerns in the country continue to drive market sentiment. The benchmark palm oil contract for February delivery on the Bursa Malaysia Derivatives Exchange rose 62 ringgit, or 1.31%, to settle at 4,797 ringgit ($1,080.41) per metric ton.

The market’s bullish momentum has been underpinned by concerns over Malaysia's palm oil production, which has shown signs of stagnation. Several media reports suggest that production in Malaysia has failed to pick up as expected, largely due to ongoing labor shortages and unfavourable weather conditions. The uncertainty surrounding output is being closely watched, with investors waiting for a potential resurgence in demand during the festive months of Ramadan and the Lunar New Year.

Research head at Sunvin Group, Anilkumar Bagani, indicated that crude palm oil futures were trading sideways to upwards, following the upward movement of overnight Chicago soyoil futures. However, he noted that the rally has been capped by the easing of South American soyoil, which has taken some momentum away from the market.

In addition to concerns over production, global edible oil markets are closely monitoring the movements of rival oils like soybeans and sunflower oil, which compete with palm oil for market share. Dalian’s most active soyoil contract saw a modest rise of 0.65%, while its palm oil contract gained 1.67%. Meanwhile, soy oil prices on the Chicago Board of Trade fell by 0.59%.

Market sentiment was further bolstered by the stability of crude oil prices, which have remained steady as markets evaluate the ongoing ceasefire negotiations between Israel and Hezbollah. Investors are also awaiting the outcome of Sunday’s OPEC+ meeting, where discussions could include a delay in the planned increase of oil output. A stronger crude oil market enhances the attractiveness of palm oil as a feedstock for biodiesel, giving further support to palm oil futures.

On the currency front, the Malaysian ringgit gained 0.34% against the US dollar, adding pressure to palm oil prices in international markets. A stronger ringgit makes palm oil more expensive for foreign buyers, particularly those holding US dollars or other currencies.

Data from the European Commission highlighted that EU soybean imports in the 2024-25 season, which began in July, had reached 4.95 million metric tons by Nov. 24, marking a 7% increase from the previous year. However, EU palm oil imports during the same period have dropped by 18%, totalling 1.26 million tons compared to 1.54 million tons in 2023. The decline in EU palm oil imports, amid increased soybean demand, signals potential challenges for the palm oil industry as it faces global competition from other vegetable oils.

With production concerns lingering in Malaysia and the market closely monitoring global edible oil trends, palm oil prices are expected to remain volatile. Analysts suggest that the outlook for palm oil remains dependent on how production challenges unfold in the coming months, as well as broader trends in the global vegetable oil market.