Palm Kernel Oil: Limited Impact from MPOB Report, Price Turning Point Approaching

The MPOB report data indicates that Malaysia's palm kernel oil demand saw a significant increase in July, but both production and inventories also rose, making the overall report slightly bearish. However, the market reaction was relatively muted.

In mid-July, the palm kernel oil market entered a critical window period. Driven by multiple factors, a price turning point is approaching, and it is expected that prices will stop falling and rebound in mid-to-late August, resuming an upward volatile trend.

MPOB Report: July Production and Inventories Both Increased

On the afternoon of August 10, the MPOB report was released. It showed that while Malaysia's palm kernel oil demand surged in July, production and inventories also increased, resulting in a slightly bearish overall report. The market reaction was subdued, with major producers' palm kernel oil FOB quotes rising by a modest $5/ton following the report.

The MPOB data revealed that Malaysia's palm kernel oil production in July was 199,400 tons, a 14.55% increase from the previous month but an 8.64% decline year-on-year. July inventories stood at 341,200 tons, up 0.90% from June, 6.30% higher than the same period last year, and 6.64% above the five-year average. From a supply perspective, July production rose by 25,300 tons or 14.55% month-on-month, while imports increased by 5,600 tons. Coupled with higher opening stocks, total supply in July expanded significantly compared to June. On the demand side, domestic consumption in July surged by 37,700 tons or 42.90% month-on-month, while exports fell by 1,500 tons or 1.73%. Although total demand grew by 36,300 tons or 21.13%, supply rose by 39,300 tons or 7.71%, leading to a slight inventory build in July due to ample supply.

Palm Kernel Oil Market Enters a Bottoming Phase

Palm kernel oil prices trended higher in early-to-mid July, but crude palm oil prices in Southeast Asian producing regions fell in late July, dragging down FOB quotes. On July 31, the average CFR China price for palm kernel oil stood at $2,150/ton, down $67.5/ton or 3.04% from the July high. Prices continued to decline in early August and had not fully stabilized. As of August 11, the mainstream CFR China price for palm kernel oil was in the range of $2,020-$2,050/ton, down $115/ton or 5.35% from the end of July. However, major producers raised their FOB quotes by $5/ton on August 10 and 11, signaling that the market is entering a bottoming-out phase, with participants awaiting Indonesia's local crude palm oil tender results.

Mid-August is a Critical Window

As of August 7, the average daily CFR China price for palm kernel oil was $2,025/ton, an 8.68% decline from the July peak. Market intelligence indicates that although the producing regions are in a traditional seasonal uptick in production, output has not surged significantly, while demand remains generally healthy. Some small and medium-sized Indonesian producers have already sold out their August-September supply. This supply-demand dynamic is broadly consistent with the MPOB data. However, despite no deterioration in fundamentals and with related oils like palm oil and crude oil showing volatile upward trends, palm kernel oil prices experienced an unexpected decline from late July to early August. Following this sharp drop, market attention is focused on the point at which the slide will halt, making mid-August a critical window period. This is because the MPOB report is released around mid-month, providing guidance for the near-term market outlook, and FOB prices have fallen near the support level of $2,000/ton. A break below this level could cloud the future direction.

Prices Expected to Stop Falling and Rebound in Mid-to-Late August

Although the MPOB report was slightly bearish, a market turning point is near. Prices are expected to stop falling and rebound in mid-to-late August, resuming an upward volatile trend. On the supply side, producing regions are in a seasonal uptick during July-August. However, recent rainfall has decreased in key producing areas. August rainfall is forecast to be 28% to 74% below average in major Indonesian growing regions and 15% to 56% below average in Malaysian regions. Market expectations for a strong El Ni帽o weather event are growing. Data from SPPOMA shows that for August 1-5, Malaysia's fresh fruit bunch (FFB) yield was down 9.3% month-on-month, and crude palm oil production fell 8.35% over the same period. Given these weather disruptions, there is uncertainty about whether palm kernel oil production can sustain its growth in August, warranting continued observation. On the demand side, local consumption and export demand in the producing regions are healthy. Indonesia's new 300,000-ton fatty alcohol capacity is being gradually commissioned, and the EUDR is scheduled for partial implementation by the end of 2026, which could expand export volumes. Additionally, from mid-to-late August, the downstream surfactant industry will enter a replenishment cycle, providing good demand support. From the raw material perspective, after the sustained price decline, crude palm kernel oil crushers are reluctant to sell at low prices, strengthening cost support. Overall, the fundamental drivers for palm kernel oil are leaning bullish. On the policy front, factors are mixed. Indonesia's B50 biodiesel mandate is progressing steadily, which will drive a trend-based increase in palm oil demand and provide a floor for palm kernel oil prices. Conversely, the Indonesian DSI (Domestic Supply Obligation) regulation, which will require exporters of certain resource-based products to pay a fee starting September 1, places some pressure on the market. In summary, maintaining the earlier view, palm kernel oil prices are expected to stop falling and rise in mid-to-late August. The CFR China average price for August is forecast at $2,120/ton, flat with July, with a trading range of $2,000-$2,300/ton. Key risk factors include potential periodic market disruptions from weather, capital flows, and policy changes.