The global palm oil market is at a pivotal juncture, following a sharp reversal in Malaysian palm oil futures after a four-day rally. While the market found some footing mid-week in Kuala Lumpur, broader fundamentals signal a shift in sentiment driven by weaker import demand from key buyers, particularly the European Union. EU palm oil imports dropped to 2.76 million tonnes from 3.41 million tonnes a year ago, amplifying concerns over long-term export growth.

Volatility in MDEX futures contracts, coupled with recent weather developments in major growing regions, is leading traders and market participants to reassess risk positioning. As tighter inventories and fluctuating speculative interest interact with policy shifts and seasonal production patterns, the coming days may prove crucial for short-term directionality. This report analyses the latest price movements, supply-demand fundamentals, and weather-driven risks shaping palm oil's outlook, providing a comprehensive update versus previous market conditions and offering actionable guidance for traders and industry stakeholders.

📈 Prices

Recent sessions saw a steep >3% decline, followed by stabilisation and a mild rebound in most actively traded contracts. Longer-dated contracts still price in a risk of further corrections with consecutive negative closes for 2027-2028 maturities.

🌍 Supply & Demand

• EU Imports: Down sharply YoY (2.76 Mt vs. 3.41 Mt), reducing export demand pressure from Malaysia/Indonesia.
• Production: Seasonal rise continues in Malaysia and Indonesia, but the pace remains uneven due to mixed weather.
• Inventory: Firming in SE Asia, but overall levels remain below multi-year averages amid export weakness.

📊 Fundamentals

• USDA/WASDE: Latest report indicates global palm oil output up modestly, with stocks tightening in India and China; price-responsive demand likely at lower price bands.
• Speculative Positioning: Funds covered shorts following the rally, but the recent price fall may trigger renewed selling.
• Policy: No fresh EU regulatory changes in the past week, but long-term policies continue to cap demand growth.
• Relative Market Sentiment: Slightly bearish versus last month's more upbeat tone, reflecting rising export competition and softening global oil complex.

☁️ Weather Outlook

• Malaysia/Indonesia: Forecasts indicate scattered showers with brief dry spells in July. Recent rains have improved soil moisture, but excessive wetness may disrupt harvesting in Sumatra.
• India: Monsoon onset slightly delayed, could restrict import demand near term.
• Short-Term Yield Impact: Net neutral: Moderate rainfall supportive overall, but local disruptions are possible.

🌐 Global Production & Stock Comparison

💡 Key Market Drivers

• Weaker EU import demand is accelerating the destocking cycle in Malaysia.
• Malaysian futures volatility increased after a quick reversal from a four-day rally.
• Seasonal production growth continues but faces intermittent weather risks.
• Absence of major policy shifts, but long-term EU restrictions remain a persistent demand drag.

📆 Trading Outlook & Recommendations

• For Producers:
  • Consider hedging part of expected Q3 production amid elevated volatility.
• For Traders:
  • Short-term: Cautious bias; look for rebound opportunities after steep drops, but avoid over-committing on the long side.
  • Monitor speculative positioning and daily volatility for tactical entries.
• For Importers/Consumers:
  • Spot market remains attractive for opportunistic purchasing as EU-driven selloff persists.
  • Assess delivery schedules against import programs to optimise the cost base.

🔎 3-Day Regional Price Forecast (MDEX Kuala Lumpur)

Bottom line: The palm oil market is in a fragile recovery mode with persistent volatility. Market focus will remain on export flows, weather developments, and speculative activity in the near term.