Since January 2026, domestic and international palm oil futures prices have followed a pattern of initially declining before rebounding, primarily driven by factors such as Malaysia's palm oil inventory buildup pressure, policy changes in Indonesia, and macroeconomic sentiment. On January 15, the palm oil futures market witnessed intensified tug-of-war between bulls and bears, with bullish positions taking profits and exiting the market, causing prices to give up nearly a week's worth of gains.

Fundamentally, this week's Malaysian Palm Oil Board (MPOB) report revealed palm oil inventories exceeding market expectations, indicating persistent stockpiling pressure. On the demand side, Malaysian palm oil exports showed marginal improvement, with early January shipments surging 31% month-on-month. Additionally, anticipated Ramadan stockpiling in India is expected to support demand. Regarding policy, Indonesia's export regulations remain uncertain. Additionally, weak crude oil prices are dampening industrial demand, while improved global macro sentiment provides some price support. Short-term palm oil markets face a mix of bullish and bearish factors, with significant upward pressure.

Malaysia's Supply-Demand Outlook Improves

The MPOB report indicates that palm oil supply remained strong while demand was weak in December 2025, with inventories climbing to record highs. However, high-frequency data for January 2026 shows an expanding production decline and marginal improvement in exports, suggesting that inventory pressure may gradually ease.

On January 12, MPOB released palm oil supply-demand data: Malaysia's December 2025 palm oil production reached 1.8298 million tons, down 5.46% month-on-month but exceeding market estimates of 1.76 million tons. Despite being in a seasonal production decline cycle, output marked the second-highest level for this period since 2018, with supply contraction falling short of expectations. Exports reached 1.317 million tons, an 8.52% month-on-month increase, exceeding market expectations of 1.23 million to 1.25 million tons. Inventories rose 7.58% month-on-month to 3.051 million tons, hitting the highest level since February 2019, indicating that inventory accumulation pressure remains unabated.

Meanwhile, January 2026 high-frequency data indicates marginal improvement in Malaysia's palm oil supply-demand dynamics, with deeper-than-expected production cuts primarily driven by oil palm trees entering their natural resting period and foreign labor shortages constraining harvesting efficiency. On the export front, Malaysia's palm oil shipments saw notable improvement as India's Ramadan stockpiling and China's pre-Chinese New Year restocking demand coincided with Indonesia's export tax reduction, driving down international palm oil prices. Regarding inventories, despite high stockpiles in December 2025, the combined effects of reduced production and improved exports in January will significantly slow inventory growth. Malaysia's palm oil is expected to reach a destocking inflection point in the first quarter of 2026.

Indonesian policy remains a key variable

According to data from the Indonesian Palm Oil Association (GAPKI), Indonesia's palm oil production has rebounded since the fourth quarter of 2025, with consumption stabilizing and rising, easing inventory pressure. Recent policy developments by the Indonesian government have become a critical variable: On one hand, Indonesia plans to confiscate an additional 4-5 million hectares of illegal oil palm plantations in 2026, representing approximately 25% of the current total area. This move may suppress medium-to-long-term oil palm production growth. On the other hand, to support the biodiesel program (with consumption reaching 14.2 million liters in 2025, a 7.6% year-on-year increase following the implementation of the B40 plan), the Indonesian government intends to raise the export duty on crude palm oil. The head of Indonesia's plantation fund management agency stated that the country will raise the export duty rate on crude palm oil from the current 10% to 12.5% starting March 1, 2026.

The tariff hike will directly increase Indonesian palm oil production costs, eroding its price competitiveness and potentially shifting some demand toward Malaysian palm oil. Tightening supply coupled with domestic consumption growth, along with Indonesia's export tax adjustment, will support international palm oil prices.

However, Indonesia's Deputy Minister of Energy stated this week that the country has scrapped plans to raise the mandatory biodiesel blending ratio to 50% this year, maintaining the current B40 program. The delay in the B50 plan has somewhat dampened momentum for further global palm oil price increases.

Import Profits Remain Low

Regarding import profits, data indicates that since the beginning of this year, the profit margin for palm oil shipments arriving in the near term relative to futures prices has been RMB-121 per ton. Although this represents some recovery from earlier levels, it remains in negative territory. The domestic palm oil market currently exhibits a relaxed supply-demand pattern, with commercial inventories remaining elevated. Low import margins dampen procurement enthusiasm, though December 2025 arrivals have already shown signs of decline.

Commercial inventories: As of January 9, 2026, commercial palm oil inventories in key domestic regions totaled 736,000 metric tons, up 2,200 metric tons (0.30%) from the previous reading. Compared to the same period last year (501,200 metric tons), inventories increased by 234,800 metric tons (46.85%). The domestic palm oil market continues to face oversupply, but the marginal reduction in imports may gradually ease inventory pressure. Traders should monitor the impact of profit recovery and demand shifts on the market.

In summary, following the MPOB report release, bearish factors have largely been priced in, leading to a rebound in palm oil prices. Subsequent trading logic hinges on marginal improvements in Malaysia's January palm oil supply-demand dynamics, Indonesia's biodiesel program, and changes to export tax policies. Additionally, expectations persist for Indonesia to raise palm oil export taxes, while the plantation confiscation plan warrants attention. Weak crude oil prices continue to weigh on industrial demand. Recently, palm oil futures have seen limited upward momentum due to bearish factors including rising inventories at origin, the phased suspension of Indonesia's B50 program, and persistently high domestic palm oil stocks. Market focus should remain on supply-side developments at origin.

As an integrated internet platform providing benchmark prices, on January 16th, the benchmark price of palm oil according to SunSirs was 8580.00 RMB/ton, an increase of 0.19% compared to the beginning of the month (8564.00 RMB/ton).

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