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Analysts say palm oil production could start climbing in July on seasonal factors, potentially undercutting the price momentum driven by a temporary surge in demand as buyers rush to avoid new US tariffs.
After a dip in June, output is expected to rebound as harvesting accelerates during the peak season, aided by favourable weather conditions. CIMB Securities forecasts that this rise in production will push Malaysian stocks up by around 6% in July, after they hit an 18-month high in June.
"Production is expected to be higher due to more harvesting days," the firm said, adding that exports had made a positive start to July.
According to cargo surveyor Intertek, palm oil exports from Malaysia — the world's second-largest producer after Indonesia — rose 5.3% in the first ten days of July compared with June. Output typically climbs month-on-month before peaking in October or November.
The market was caught off guard this week by the United States' announcement of a 25% tariff on all Malaysian goods. At the same time, Washington imposed a 32% tariff on Indonesia, raising the cost of palm oil for American buyers and pushing them towards cheaper domestic alternatives such as soybean oil.
CIMB said "buyers may rush to secure volumes before the tariff hike, taking advantage of the current lower 10% rate on US imports from Malaysia."
Palm oil prices — used in everything from lipstick to diesel fuel — have climbed above 4,000 ringgit per tonne this month, up 12% from their May lows.
Phillip Securities said price-sensitive markets, particularly India — the world's largest importer — are now showing "signs of caution, with buyers adopting a wait-and-see approach," which could keep prices confined to a narrow range.
The firm added: "While short-term support may come from restocking and relative price competitiveness, we remain cautious amid heightened market volatility, rising input costs and broader macroeconomic risks, including the potential for trade disruptions."
Source: The Edge Malaysia