Palm oil yet to bottom amid macro headwinds and bear fundamentals

On the futures side, the DCE palm oil January contract has moved markedly lower, closing at Yuan 8,836/tonne in the night session on November 6, 2026, down 1.84% for the day and leading soybean oil and rapeseed oil in weekly declines.

In the spot market, the national weighted average price of 24-degree palm oil fell to Yuan 8,725/tonne, down Yuan 495/tonne from Yuan 9,220/tonne at the start of the week, a weekly decline of 5.37%. Although domestic spot basis quotes have recovered somewhat, they have remained at a discount.

This deep correction in palm oil prices was not caused by any single factor, but by the resonance of collapsing macro factor, expectations of rising supply at origins including Malaysia and Indonesia, and the reality of high domestic inventories.

The core driver of this round of declines in the oils and fats complex is the marked weakening of macro costs. Last week, WTI crude plunged as much as 14.3% to US $88.12/barrel; although it later rebounded to US $90.52/barrel amid uncertainty over US-Iran tensions, the overall downward shift is clear. As the pricing anchor for the oils and fats complex, crude's sharp pullback directly weakened expectations for biodiesel economics. Palm oil, a key biodiesel feedstock, saw its industrial demand premium contract sharply. With cost support weakening, the palm oil futures board lost an important upward driver, and rising risk aversion among funds accelerated the decline in futures prices.

From the perspective of main palm oil producing countries' fundamentals, Malaysia's palm oil has officially entered its seasonal production-decline cycle, and SPPOMA high-frequency data show October output edging down 0.84% MoM, hinting at an inflection point. Market funds, however, have remained more focused on the accumulating pressure of absolute inventories. Several authoritative international institutions recently forecast in research reports that Malaysia's end-November stocks will surge to around 3.75 million tonnes, not only a record high for the same period but also well above previous optimistic market expectations, significantly suppressing bullish sentiment on the board.

In addition, Indonesia, the world's largest producer, recently cut export duties to stimulate demand, and its cumulative exports for January-September rose 8.1% year-on-year to 19 million tonnes; strong export performance has somewhat accelerated destocking, but Indonesia's overall palm oil output has remained high, and supply at origin has not seen any substantive contraction. The weak sentiment in overseas markets quickly transmitted to China, directly dragging down domestic futures and spot prices.

Domestic supply-demand fundamentals are also key to suppressing palm oil spot prices and basis performance. According to Mysteel's data, domestic commercial palm oil inventories edged down 1.66% month-on-month to 1.1974 million tonnes but surged 101.99% year-on-year by end-October, with the absolute volume still at a historical high for the same period.

The huge inventory base means ample spot market supply, and sellers are more willing to sell, keeping the basis at a persistent discount. In Zhangjiagang, for example, the basis for 24-degree palm oil gradually recovered from Yuan -180/tonne last week to Yuan -80/tonne as of the time of this writing, but remains at a discount. High inventories have not only suppressed spot prices but also limited the futures board's rebound space, creating a negative feedback loop in which "spot drags down futures, and futures suppress spot".

It is worth noting, however, that the soybean oil - palm oil price spread has recently narrowed significantly.

According to Mysteel, on November 6, the national average price of first-grade soybean oil was Yuan 8,892/tonne and that of 24-degree palm oil was Yuan 8,725/tonne, putting the soybean oil - palm oil spread at Yuan 167/tonne. The spread widened rapidly from Yuan -92/tonne on November 3 to Yuan 167/tonne. Palm oil has regained its discount to soybean oil, which in theory should help boost edible demand.

However, under current high edible oil inventory pressure, the spread's recovery has not effectively stimulated large-scale downstream purchasing. Although the fourth quarter is traditionally a peak consumption season, as temperatures gradually fall, the seasonal share of palm oil used in catering and food processing declines; downstream food enterprises and end users mostly adopt a buy-as-needed strategy, restocking slowly, and demand-side absorption remains weak.

Regarding forward-month palm oil import purchases, Mysteel's research shows that last week (October 30-November 5) China added only one December purchase and four May 2027 washouts.

By monthly Chinese palm oil's purchase progress, October purchases were 120,000 tonnes, November 240,000 tonnes, and December 156,000 tonnes, while September and October 2027 were only 48,000 tonnes and 36,000 tonnes respectively, a significant contraction in forward-month purchases.

This reflects, on one hand, the suppression of purchasing enthusiasm by the closure of the import profit window and, on the other, traders' caution about forward demand. Against the backdrop of domestic commercial palm oil inventories at an absolute high of 1.1974 million tonnes, the reduction in forward purchases implies lower future arrivals and could help slowly destock over the medium to long term; but given the large current spot base, this forward "reduction expectation" offers minimal relief to the near-term reality and is unlikely to reverse the current weak pattern of pressure on both futures and spot prices.

In the short term, palm oil is expected to remain in a weak, range-bound pattern, with downside limited by palm oil production-cut expectations and delayed purchases, and upside capped by high inventories and macro costs. The DCE main palm oil contract is expected to trade in the Yuan 8,600-9,000/tonne range, with the basis holding at a slight discount.

In addition, it is advisable to wait for the MPOB November report, while monitoring domestic destocking progress and crude oil stabilization. If abroad and domestic palm oil inventories destock more than expected or crude oil rebounds sharply, long positions in forward months could be built on dips; if inventories continue to accumulate, watch for further downside risk. Key follow-ups include Malaysia's final October production data, weekly domestic palm oil inventory changes, China's palm oil purchase progress, and macro policy developments.