Soybean oil - palm oil spread turns positive, underpinning domestic palm oil consumption

For a prolonged period, the soybean oil - palm oil spread remained inverted, with palm oil priced above soybean oil, upending the long-established price relationship in the edible oils market. Food factories, blended oil producers, and frying operations abandoned palm oil in favor of soybean oil. In this case, the palm oil's port inventories stayed high. After nearly two years of deep inversion, the soybean oil - palm oil spot spread finally turned positive in October 2026, with soybean oil once again commanding a premium over palm oil.

With the spread back in positive territory, the substitution window between soybean oil and palm oil has reopened. Futures trading logic, spot transactions, and import purchase pace have all shifted fundamentally. The following analysis examines the restructuring of the edible oils landscape.

The soybean oil - palm oil spread is the key baton guiding China's edible oils consumption. Historically, soybean oil held a premium over palm oil, and palm oil, on price advantage, substituted for soybean oil in fried foods, instant noodles, baking, and blended oils.

During the inversion, palm oil lost cost-effectiveness; demand was limited to rigid needs, with some shifted to soybean oil, which boosted soybean oil consumption and driving port palm oil inventory accumulation.

Currently, the spread turning positive means palm oil is once again the relatively cheaper edible oil. Economics of formula adjustment and blending substitution have re-emerged. Once the spread stays positive, palm oil inclusion ratios will gradually rise and spot transactions should recover; soybean oil demand will marginally weaken, and the demand balance will swing anew. But the spread turning positive is a necessary, not sufficient, condition, that is, substitution pace remains constrained by palm oil supply structure, basis, arrival costs, washout pressure, and domestic inventory.

Domestic soybean oil supply comes from imported soybean crushing; soybean oil inventory is driven by oil mill operating rates, soybean arrivals, the soybean oil-to-soybean meal price ratio, and end-user delivery. As of October 23, 2026, national commercial inventory stood at 1.4828 million tonnes, up 20,700 tonnes or 1.42% week-on-week and 11,200 tonnes or 0.76% year-on-year.

Domestic palm oil commercial inventory in key regions stood at 1.2176 million tonnes, up 12,900 tonnes or 1.07% week-on-week; versus 607,100 tonnes a year earlier, up 610,500 tonnes or 100.56%, based on Mysteel's latest survey. Both are at last year's highs, but palm oil has doubled year-on-year and is clearly harder to destock short term.

Negative soybean crushing margins prompt mills to cut operating rates and control output; with downstream pickup, soybean oil inventory accelerates downward, easily triggering rallies. Conversely, concentrated soybean arrivals, recovering operating rates, and inventory-building expectations, plus the spread turning positive, prompt downstream caution, with some orders shifting to palm oil and demand expectations weakening.

Soybean oil's pricing anchor is more tied to the soybean chain, and domestic inventory is the strongest near-term constraint. Even if external sentiment lifts the whole sector, once domestic soybean oil inventory pressure rises, soybean oil's upside is typically weaker than palm oil's, and selling pressure appears faster on pullbacks.

Palm oil also tracks producing region prices. Indonesia and Malaysia are the world's two largest producers and exporters.

Per September MPOB data, Malaysia's palm oil ending stocks surged to a record 3.51 million tonnes, up 1.15 million tonnes year-on-year; monthly production of 2.12 million tonnes hit a historic high, up 280,000 tonnes; exports were 1.12 million tonnes, down 310,000 tonnes.

Palm oil producing region inventory pressure is clear, near-month spot supply is loose, and near-month futures remain under pressure. In October, Malaysia palm oil production growth slowed and edged down month-on-month, exports recovered noticeably with more Indian and EU purchases, and the inventory-building slope flattened--but absolute levels remain high, with no basis for rapid near-month tightening. MPOA data show October 1–20 production up 6% from the same period last month, and the palm oil inventory build trend continues.

Indonesia's B50 biodiesel policy continues to divert palm oil resources long term, providing rigid demand support; short term, stable production and adjustments to export quotas and taxes directly affect cargo flows to China. At the distant-month level, El Niño-driven lagged production cut expectations remain the bull mainline, supporting far-month valuations and widening the near–far spread.

This "near-month high inventory vs. distant-month weather + strong biodiesel demand" contradiction is the core driver of palm oil's sharp swings.

Looking ahead, the soybean oil - palm oil spread turning positive opens the substitution window but does not imply a palm oil uptrend. The market is in a tug-of-war between near-term high inventory and distant-month production cut expectations. Sustainability hinges on three verification signals.

First is the substitution implementation: whether food factories and blended oil plants substantively adjust formulas, and whether spot transactions and port pickup recover sustainably. If the spread turns positive only in theory while purchasing stays weak, sustainability is questionable.

Second, whether soybean oil can sustainably destock, and when palm oil's high-inventory inflection appears. If palm oil purchase margins stay favorable, purchases rise again, and port inventories keep climbing, upside remains capped even with the spread positive; continued soybean oil inventory-building will likewise cap gains.

Third comes the palm oil imports washout and high-frequency data: whether washout pressure of palm oil has cleared, Malaysian monthly inventory/export/production data, Indonesia's B50 implementation, and crude oil prices jointly determine whether distant-month expectations materialize.

Over the medium to long term, the spread returning positive marks a return to the traditional consumption model. Palm oil is again competing for edible share, and soybean oil's substitution dividend marginally weakens. The trading mainline shifts from two years of "inversion and soybean oil substitution" to range-bound spread oscillation, bidirectional substitution switching, and repeated tug-of-war between near-month inventory and distant-month weather/biodiesel expectations. Volatility will stay elevated, and spread arbitrage will become a key mainline in edible oils trading.