Why have Malaysian palm oil prices reached their highest point since July 2022?

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Malaysian Palm Oil Prices Hit Highest Levels Since July 2022 Due to Supply Shortages and Currency Depreciation

Malaysian crude palm oil futures have reached their highest point since July 2022, with Bursa Malaysia’s third-month contract closing at RM4,486 per tonne on October 23. This surge, representing a 22.6 per cent increase year-to-date and a 19.5 per cent gain compared to the same period in 2023, is primarily driven by significant supply concerns stemming from Indonesia, coupled with the depreciation of the Malaysian ringgit and rising prices in related edible oils.
Indonesian Supply Shortfall Amidst El Niño and Mandate Changes

A critical factor contributing to the price rally is a substantial supply shortfall from Indonesia, the world's largest palm oil producer. Indonesian exports in September 2024 dropped to 1.79 million tonnes, a decrease from 2.38 million tonnes in August and 2.28 million tonnes a year prior. This decline is attributed to the impact of the 2023-2024 El Niño, which has affected palm fruit yields, leading to reduced domestic production. Indonesia's output for the first eight months of 2024 was 34.52 million tonnes, down from 36.29 million tonnes in the same period of 2023. Furthermore, Indonesia's planned B40 biodiesel mandate in 2025 is expected to divert an additional 1.5-1.7 million tonnes of palm oil annually from the export market, exacerbating supply pressures.
Ringgit Depreciation Boosts Foreign Demand

The depreciation of the Malaysian ringgit has also played a significant role in pushing palm oil prices upward. Between October 1 and October 22, the ringgit fell by 4.2 per cent against the US dollar. This currency devaluation makes Malaysian palm oil more attractive and affordable for foreign buyers, thus increasing demand for ringgit-denominated contracts and contributing to the price increase.
Broader Edible Oil Market Trends and Geopolitical Factors

The price surge in Malaysian palm oil is also influenced by broader trends in the global edible oil market and geopolitical developments. The FAO Vegetable Oils Price Index (FVOPI) saw a 4.6 per cent month-on-month increase in September, reaching a 21-month high. This rise was driven by tightening supply outlooks for soy, sunflower, and rapeseed oils in the US and Europe. Additionally, geopolitical tensions, particularly in the Middle East, have introduced volatility and bolstered demand for biofuel feedstocks like palm oil, especially as crude oil prices experienced a notable 10 per cent rise in early October, adding to the bullish sentiment across commodity markets.
Tightening Malaysian Inventories Despite Robust Exports

While Malaysia has maintained robust palm oil exports in 2024, shipping 12.30 million tonnes between January and September, domestic inventories have tightened considerably. Stocks fell to 1.06 million tonnes in September 2024, a decrease from 1.37 million tonnes recorded in September 2023. This reduction in available stock, despite strong export volumes, indicates that production is not keeping pace with demand, further contributing to upward price pressure.

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Why have Malaysian palm oil prices reached their highest point since July 2022?

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