Edible oils fall amidst crude weakness and Australia canola rumors

The three major edible oil futures on Dalian Commodity Exchange (DCE) collectively weakened on June 25, with palm oil and rapeseed oil leading the decline primarily driven by significantly softening crude, in addition to rumors regarding Australia's canola exports, according to Mysteel's analysis.

In detail, the DCE palm oil September contract touched an intraday low of Yuan 9,313/tonne, down Yuan 307/tonne or 3.29% from the previous day's close. The DCE rapeseed oil September contract fell to an intraday low of Yuan 9,453/tonne, down Yuan 297/tonne or 3.05% from the prior close. Soybean oil, however, proved significantly more resilient, with its September contract reaching an intraday low of Yuan 8,302/tonne, down only Yuan 91/tonne or 1.08% from yesterday's settlement.

Persistent crude oil weakness is the primary driver behind today' s sharp drop in vegetable oil prices.

With the United States and Iran having reached a principled consensus on a ceasefire framework and both sides releasing the official agreement text, geopolitical risk premiums have been largely unwound. WTI crude oil closed the last session at $69.05/barrel, marking ten consecutive trading days of decline from its June 10 high of $82.6/barrel. As crude oil prices fall, the profitability and cost-effectiveness of biodiesel weaken naturally. As one of the primary feedstocks for biodiesel, palm oil bore the brunt of the impact.

However, compared to crude oil's relatively smooth descent, palm oil's price moves over the past week were not entirely in lockstep with crude. The main reason lies in Indonesia's B50 biodiesel policy and future weather risk, which has provided demand support and supply concerns for palm oil.

On June 23, the Indonesian government officially announced that B50 biodiesel mandate (a 50% blend of palm oil methyl ester with 50% fossil diesel) will be implemented starting July 1, 2026. As a result, palm oil futures actually rose counter-cyclically amid crude oil weakness in recent days. However, as crude prices continued to slide and broke through the $70/barrel level, nearing pre-U.S.-Iran conflict levels, longs exited the market, and the downward price pressure was released in a concentrated manner today.

Apart from pressure from soft crude, Australia's canola supply rumors have added pressure on rapeseed oil.

Since 2020, Australian canola has been excluded from the Chinese market due to phytosanitary issues, including plant diseases. Last year, after China imposed anti-dumping duties on Canadian rapeseed, COFCO Corporation made several trial purchases of Australian canola. However, exports of Australian canola to China have remained less than smooth. Today, the Australian government's official website updated its content regarding canola, primarily issuing the latest general notification requirements for trial bulk shipments of canola to China.

Though the website statement indicated that this remains in the bulk transport trial phase and has not clearly confirmed commercial resumption, the market interprets it as a signal for potential loosening of import restrictions. At the same time, market rumors that domestic enterprises have been inquiring about Australian canola prices, coinciding with the website update, fueled expectations of rising domestic rapeseed supply. Under these compounding factors, together with the crude oil decline, rapeseed oil prices moved lower in tandem.

Yet, soybean oil prices have shown relative strength against weak fundamentals, including estimations of high soybean port arrival for the third quarter, high crush volumes, and the fact that June-August is typically an off-season for domestic soybean oil consumption.

First, soybean oil prices are already trading within a reasonable valuation range, leaving limited room for further downside. The market recognizes that current price levels have already priced in most of the bearish fundamentals, making further significant declines unlikely without fresh negative catalysts.

Second, the significant soybean oil - palm oil price spread has made soybean oil cost-competitive, and domestic soybean oil export demand is underpinning prices.

Since mid-March, geopolitical risks have pushed palm oil futures higher, with the spread between the main soybean oil and palm oil contracts falling below Yuan -1,000/tonne and remaining near that level for several months. As a result, soybean oil exports have increased markedly.

According to market statistics, the collective soybean oil exports from June to August are projected to exceed 200,000 tonnes, significantly higher than 34,000 tonnes in 2024 and 140,000 tonnes in 2025, based on General Administration of Customs of the People's Republic of China. In other words, lower soybean oil prices tend to attract stronger buying interest, leaving limited downside room.

In the short term, the bottom range for domestic palm oil and rapeseed oil will still depend on crude oil price movements and the actual implementation progress of Indonesia's B50 policy. If crude oil continues to weaken, vegetable oil prices may probe lower levels.

In the long term, though El Niño weather-driven production cut is yet to materialize, the weather premiums are already priced in prematurely. The market now faces the dual pressures of a crude oil pullback and expectations of U.S. dollar rate hikes. Prices may need to first find demand through downside adjustment before trading the forward production-cut narrative.