Inventory Pressure Multiplies, Palm Oil Prices Weakly Decline in May

May 28 news

According to Spotcom data: In May, the palm oil market showed mixed trends, mainly oscillating downward, with a price decrease of over 3%. At the beginning of the month, the average market price of palm oil in China was 9,672 CNY/ton. By May 28th, the average market price of palm oil in China had fallen to 9,374 CNY/ton, a decline of 3.08%.

The main factors influencing the May palm oil market are as follows:

Supply side: Malaysia's palm oil production in May is expected to decline by 2% to 12% month-on-month. Meanwhile, the market is concerned that the El Niño phenomenon could lead to reduced production in Southeast Asia in the longer term. At the end of March, Indonesia's palm oil inventories rose to 2.57 million tons, a significant increase from February's 2.06 million tons. China's palm oil inventories also remain relatively high at 760,000 tons.

Demand Side: Growing Demand for Biodiesel—Malaysia will implement B15 (a blend of 15% palm oil-based biodiesel) starting June 1, and Indonesia has reaffirmed its plan to implement B50 starting July 1, both of which are expected to significantly boost consumption.

On the cost side: As crude oil serves as an alternative energy source for biodiesel, a rise in its price will enhance the attractiveness of palm oil as a feedstock, providing support for palm oil prices.

Palm Oil Spotcom Analysis: From the price trend chart of palm oil, key indicators show that on May 9th, the 10-day moving average of palm oil crossed below the 20-day moving average, with the 10-day moving average remaining under the 20-day, and the difference between the averages narrowing in reverse, indicating a deceleration in the decline. By the end of May, the 10-day and 20-day moving averages are continuously approaching each other, suggesting that there is still room for an increase in palm oil prices at the beginning of June.

Auxiliary Indicator: As of the end of May, palm oil prices were at the mid-to-low levels over the past 10 days and the mid-to-low levels over the past 20 days, indicating strong upward momentum for palm oil prices in the long term. To sum up, in June, China’s palm oil fundamentals will continue to be predominantly bullish. Production areas are entering a period of reduced output, providing upward factors for futures prices. Meanwhile, rigid demand for palm oil in China is increasing, leading to a market trend characterized primarily by oscillating price increases.

From a technical perspective, it can be seen that at the end of May, the palm oil market in China is at a low level, with limited room for decline. At the beginning of June, the overall trend of the palm oil market in China is expected to be strong with fluctuations, and an increase is anticipated, with the estimated price ranging between 9,300 CNY/ton and 9,700 CNY/ton.