According to data from Trading Economics, the price of palm oil reached its highest point since mid-2022 late last year. On 11 November, the price reached 5,195 Malaysian ringgit (€1121.76) per tonne, and on 5 December it reached 5138 Malaysian ringgit (€1109.45) per tonne.
Factors such as the RSPO standards and the EUDR may have created market uncertainty, but underlying factors, most predominantly supply, were still the main drivers of the spike.
Market uncertainty
11 November, when the palm oil price reached its highest point, was also the day on which the Roundtable on Sustainable Palm Oil (RSPO) started its annual roundtable in Bangkok, Thailand.
Its new standards, which are updated every five years, were voted through two days later.
Could the uncertainty created by such an event have put upward pressure on the price?
“This news did have some impacts on the market as with any compliance rules‚“ explains Roxanne Nikoro, market analyst at Expana. Yet this did not have a highly significant effect on the market compared with the fundamental tightness expected around this time of the year.
Events like the RSPO standards being released do act “as a bullish driver, but price is still maintained. There was that peak, but price [still maintains a] high level on fundamental issues.”
Furthermore, as the original EUDR deadline got closer, some buyers were looking to shore up their supply in case the announced delay did not take place.
“Prior to the delay, we had a lot of players in the EU seeking palm oil, to ensure supply in case that law was going to be implemented.”
Demand could spike again as the new deadline, 30 December 2025, gets closer, Nikoro suggests, as buyers attempt to shore up their supply once more.
Fundamentals
However, while these factors may have contributed, the market’s underlying fundamentals – essentially, production numbers, production volumes, and the overall supply – were the main factor in the spikes.
There is usually “a tightness in the market” ahead of December, explains Nikoro, where supplies are at a low.
“With the holiday and festival periods coming up, we do usually see high prices in November.”
Why did the prices fall?
After the two spikes seen here, prices have once again returned to levels similar to what they were in October, where they remain. This, according to Nikoro, is mainly due to ‘demand rationing.’
Because of the high prices seen earlier, many buyers are switching oils. Palm oil, which usually forms the price floor, reached levels higher even than soybean. Thus, players in markets such as India simply switched from palm to soy.
Furthermore, Indonesia had previously planned to increase the percentage of palm oil in its biodiesel blend from 35% to 40% on 1 January, which would have meant that export availability from Indonesia could reduce. However, this was delayed until February, decreasing demand.
Prices may remain firm or go down, Nikoro suggests. Demand rationing may continue to drive down prices, although dryness in South America has the potential to affect soybean yields, thus turning buyers back to palm.