As we move through April 2025, the global palm oil market is at a critical juncture, shaped by a confluence of shifting fundamentals spanning production rebounds, evolving biodiesel mandates, diverging demand patterns, and a shifting pricing landscape relative to competing oils.
Palm oil has recently regained a distinct pricing edge over its closest competitor, soybean oil. After months of trading at a premium, palm oil now sits at a notable discount of approximately $50 per metric ton, a dynamic that is reshaping import behavior across key price-sensitive markets.
India, in particular, is responding swiftly ramping up palm oil imports as it capitalizes on the price dip, while soybean oil prices remain buoyed by tightening U.S. supply and logistical issues stemming from ongoing trade realignments.
Malaysia’s production outlook has turned a corner. From April 1–20, output rose by over 9% month-on-month, driven by favorable weather, improved fruit yields, and better oil extraction rates. While this is a positive sign for supply assurance, it has concurrently applied downward pressure on benchmark prices, just as Indonesia’s production reached 4.57 million metric tons in March up from 4.425 million metric tons the month before.Looking at the broader 2024-25 marketing year, global production is forecast to edge up slightly to 80.34 million metric tons, compared to 79.83 million in the previous year.
While this growth is moderate, it will play a pivotal role in balancing the bullish momentum created by biodiesel demand and policy-driven supply constraints.
Indonesia’s commitment to its B40 biodiesel mandate a 40% blend of palm oil in biodiesel is perhaps the single most transformative factor in tightening export availability. This policy is expected to divert an additional 2 million metric tons of palm oil into domestic fuel consumption, removing a substantial volume from the export pipeline.
To fund this ambitious blending program, the government has also raised export levies from 7.5% to 10%, further discouraging outbound flows. In a market already primed for tightness, this adds a layer of bullish structural support—particularly as biofuel demand continues to eat into food and industrial availability.It’s also worth noting that biofuels now account for around 20% of total global vegetable oil consumption, with palm oil playing a central role due to its cost-efficiency and availability. However, economic feasibility is becoming more complex.
The POGO spread the differential between palm oil and gasoil has widened to nearly $165 per metric ton, making biodiesel blending more expensive unless heavily subsidized. This reality underscores the importance of policy compliance and government incentives in sustaining the current momentum.
In terms of demand, two Asian giants India and China are charting markedly different courses.India is emerging as the leading buyer this season. Its March imports surged by nearly 14% month-on-month, reaching over 424,000 metric tons.
This jump is largely attributed to palm oil’s competitive pricing. By April, cost-and-freight (CFR) prices for India had dropped by over 10%, making palm oil a compelling buy. Market participants expect India to restock aggressively ahead of the summer months, with annual imports projected to reach around 9.4 million metric tons for 2024-25. In stark contrast, China’s demand has been more muted.
Buyers have opted for minimal restocking, purchasing only essential volumes amid ample domestic supplies and subdued downstream activity. There is cautious optimism that demand will pick up during May and June, traditionally a stronger consumption window. However, the scale and pace of recovery remain uncertain, and without a significant shift, China may continue to act as a dampener on bullish price trends.
Palm oil's newfound discount has re-energized its role as a substitution candidate, particularly as other vegetable oils experience varying degrees of constraint. Soybean oil, buoyed by shrinking U.S. inventories and logistical challenges, has regained a premium over palm oil after briefly trading below it earlier this year. Meanwhile, sunflower oil and rapeseed oil continue to face supply bottlenecks, largely stemming from geopolitical tensions and adverse weather in key producing regions.
This backdrop offers palm oil an opportunity to recapture market share across non-traditional territories, especially where price arbitrage becomes favorable.
In the short term particularly through Q2 2025 palm oil prices are expected to stabilize around RM3,900 per metric ton (approximately $889), provided India sustains its current import momentum and Malaysia avoids a steep production spike. The summer restocking cycle should lend underlying support.
Mid-term prospects through the second half of 2025 remain tied to how effectively Indonesia enforces its biodiesel mandates and whether crude oil prices rise, narrowing the POGO spread and improving biodiesel blending margins. Any slowdown in production growth or escalation in fuel prices could push palm oil higher, potentially reigniting bullish sentiment.
Bullish Catalysts:
Bearish Catalysts:
For now, palm oil traders should closely monitor two key signals:
India’s pace of imports and the trajectory of Malaysian production. Short-term corrections could present strategic entry points for long positions, especially ahead of seasonal demand peaks.
Over the medium term, success hinges on understanding Indonesia’s policy execution and the external influence of crude oil markets.
If biodiesel blending becomes economically viable again either through subsidy enhancements or energy price hikes it could mark the beginning of another upward cycle for palm oil prices.
As always, flexibility and responsiveness to both regional signals and global policy shifts will be essential for staying ahead in this dynamic market.
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