Malaysian Palm Oil Prices Rise on Stronger Rival Oils, Tight Supply Outlook

KUALA LUMPUR: Malaysian palm oil futures bounced back on Monday, reversing a three-day losing streak, driven by stronger performance in rival oils and growing expectations that Indonesia may raise its palm oil export taxes and levies in December.

The benchmark palm oil contract for February delivery on the Bursa Malaysia Derivatives Exchange gained significantly, closing higher by more than 1%. The positive sentiment was primarily driven by recoveries in competing oils, such as soyoil, during Asian trading hours. It was pointed out that the market was also supported by speculation that Indonesia, the world’s largest exporter of palm oil, may increase export taxes next month.

The prospect of a tax hike in Indonesia had created a rebound in Malaysian palm oil futures. "Indonesia’s expected rise in palm oil export taxes and levies for December has bolstered the likelihood of a recovery in Malaysian palm oil futures," he said. Indonesia’s palm oil reference price is expected to increase, which could lead to higher export taxes, making Malaysian palm oil more competitively priced in the global market.

Bagani noted that Malaysia's palm oil could see increased demand if Indonesia's export taxes rise significantly. Typically, when Indonesia raises its taxes, buyers tend to shift their focus to Malaysian palm oil, which is often perceived as a more affordable alternative. This shift in demand could benefit Malaysia, especially as global demand for vegetable oils remains robust.

Meanwhile, rival oils also played a significant role in supporting palm oil prices. On the Dalian Commodity Exchange, soyoil prices were down slightly, but palm oil contracts saw an increase. Similarly, soyoil futures on the Chicago Board of Trade rose, further boosting the sentiment for palm oil, which is often influenced by price movements in other vegetable oils like soybean and sunflower oils. These oils are direct competitors in the global edible oils market, and their price trends often have a ripple effect on palm oil prices.

However, Malaysian palm oil exports showed some signs of slowing. Cargo surveyors estimated a decline in exports for the period between early and late November, with a drop of around 8% to 9% compared to the previous month. Despite this, analysts remain optimistic about Malaysia's palm oil outlook, largely due to the expected changes in Indonesia’s export policy, which could lead to increased demand for Malaysian supplies.

Crude oil prices also influenced the palm oil market, though they slipped on Monday after a strong performance last week. Despite a retreat in oil prices, ongoing geopolitical tensions involving major oil-producing countries, such as Russia and Iran, helped to maintain a floor under crude prices. Lower crude oil prices generally make palm oil less attractive for biodiesel production, but the geopolitical uncertainty continued to support oil prices, which indirectly benefited palm oil.

The Malaysian ringgit also strengthened against the US dollar, making palm oil more expensive for buyers holding other currencies. The slight appreciation of the ringgit added complexity for palm oil exporters, who must contend with currency fluctuations in addition to market conditions when setting their prices.

Looking ahead, the palm oil market will closely monitor developments from Indonesia regarding any adjustments to export taxes and levies in December, as these will likely play a key role in shaping demand and price trends in the coming months. Despite the recent dip in exports, there remains optimism that stronger global vegetable oil demand and shifting market dynamics will provide support for Malaysian palm oil.