The global vegetable oils market is currently caught in a fierce clash between bullish and bearish narratives.
On the palm oil side, Malaysia's short-term surge in production is colliding with deep market skepticism about whether that output can be sustained.
On the demand side, dramatic shifts in India's import mix could become the key marginal variable driving destocking at the origin.
On the weather side, the synchronized evolution of a strong El Niño and a positive Indian Ocean Dipole is reshaping the grand narrative of distant-month production cuts.
Overall, the market is gradually shifting from short-term pricing of "surplus and inventory build-up" toward a medium-term trading logic of "certainty of production declines."
Sunflower oil abundance and the sustainability of palm oil supply
Russia and the wider world are forming a markedly abundant sunflower seed crop, and a core concern is whether sunflower oil exports from the Russia-Ukraine direction will become an important future source of inventory pressure.
The current phase of relative tightness, as logistics problems are gradually resolved, could turn into a concentrated release of inventories, sparking widespread discussion about how that pressure will be discharged.
The market estimates that Russia may hold an enormous inventory on the order of 4-5 million tonnes, and if released in a concentrated manner, it would constitute a phased supply shock.
Turning back to the palm oil supply side, Malaysia's recent strong production trend has drawn intense attention, but its sustainability faces multiple doubts.
First, some argue that high temperatures have accelerated the ripening of certain fruit bunches, thereby generating high output—if this attribution holds, then such high output is essentially a "front-loading" of production, and subsequent high-yield continuity will be insufficient, meaning current high output may fall short of expectations.
Second, another important perspective is that a large volume of Indonesian fruit bunches may be flowing into Malaysia through illegal or non-compliant channels across the border between Borneo and Kalimantan, significantly inflating Malaysia's apparent production.
This cross-border gray logistics chain adds uncertainty to the authenticity of Malaysia's production data.
At the same time, Indonesia's oil palms are seeing increasing replanting, with seedling sales and immature area rising in tandem, but planted area is a slow variable that takes a long time to change, and short-term linear extrapolation is facing growing criticism.
Regarding doubts about tree age, an important recognition must be made: although Malaysia has maintained a certain proportion of rapid replanting in recent years, the specific ratio is disputed, roughly falling between 2% and 4%.
If the replanting ratio can reach 4%, calculated on a 22-28 year growth cycle, then tree age no longer constitutes a key constraint on production.
In other words, the tree-age constraint is gradually being loosened.
Another important piece of corroborating evidence comes from palm kernel oil: as Malaysian CPO prices fell sharply, kernel prices also dropped rapidly, and in the early stage of palm tree maturity, young-age output may be more realized as palm kernel oil production; with palm kernel oil prices now falling further, even more than palm oil, this precisely constitutes a possible verification.
Malaysia currently has a relatively large amount of new trees transitioning from immature to mature area, which also explains the structural recovery in production to some extent.
Chart: Palm plantings of sample Indonesian companies
AALI (Astra Agro Lestari) AALI (Astra Agro Lestari) 2025 annual report
Chart: Palm plantings of sample Indonesian companies LSIP (Lonsum) LSIP 2025 annual report
Chart: Palm plantings of sample Indonesian companies SIMP (Salim Ivomas Pratama) SIMP (Salim Ivomas Pratama) 2025 annual report
Based on the industry-wide common challenges reflected in the annual reports of listed Indonesian palm oil companies, they can be summarized across five dimensions.
First, aging tree age coexists with divergent replanting rhythms. GAR has the healthiest age structure, mainly under 15 years, yet still maintains a replanting intensity of about 16,800 hectares per year; AALI has 66% of trees over 15 years old and, constrained by the structural supply of seedlings, its replanting ramp-up is slow, with 2025 FFB yield of only 15.66 tonnes per hectare, significantly below GAR's 19.0 tonnes per hectare in the same period. TBL is the opposite, with immature area accounting for 22.6%, giving it capacity release space over the next 3-5 years, but its total oil palm area of 66,000 hectares is not a general sample.
Second, the B40 mandatory blending mandate constitutes the strongest demand variable for 2025. According to GAPKI figures, nationwide B40 absorbs about 15.6 million kiloliters, equivalent to nearly 14 million tonnes of crude palm oil, roughly 12% of Indonesia's annual output; while strengthening the origin price floor, the policy side also continues to squeeze export premium space.
Third, under a tight price balance, relative performance among companies depends more on yield and replanting rhythm. In 2025, CIF Rotterdam quotes concentrated in the $1,222-1,283 per tonne range, up 13%-15% year-on-year; B40 absorption, Middle East geopolitical premiums, and Asian holiday stocking demand together provided price support, and for 2026 all companies expect the price center to remain high but with greater volatility.
Fourth, weather and geopolitical risks are being taken seriously. TBL lists the El Niño dry season as a core production risk for 2026, while AALI, GAR, LSIP, and SIMP also flag in their outlooks the disturbance to yields from drought and abnormal rainy seasons; on the geopolitical side, uncertainty around the Middle East situation, trade policy, and the pace of Chinese and Indian demand is widely mentioned.
Fifth, sustainable compliance and regulatory costs continue to rise. AALI bears DMO/DPO obligations and EUDR response pressure, TBL maintains 96% ISPO certification coverage, and GAR covers 11,000 smallholders through the Sawit Terampil program and is advancing the commercialization of drought-resistant varieties.
El Niño and the Indian Ocean Dipole: the timeline of the production-cut narrative
The weather variable is at the core of this round of discussion. Malaysia's dry season is concentrated in the first quarter, while Indonesia's is in the fourth quarter; the two lie on opposite sides of the equator, and the evolution of drought conditions shows clear divergence.
Some argue that in the years before an El Niño forms, the drought periods in Malaysia and Indonesia may diverge, thereby driving a production decline in Malaysia in the fourth quarter of 2026.
The historical experience of 2015 shows that when scattered rainfall returned early in the drought, old trees in areas such as Sabah could recover growth as long as they received scattered precipitation, and output stayed high for a time; but such a situation is difficult to sustain long term, and once continuous drought sets in with no rapid rainfall replenishment, it can cause massive production losses that are hard to repair quickly, and these effects may be further amplified in the distant future under El Niño's influence.
In addition, with the arrival of Ramadan, February of the following year may also be a production-decline period worth watching—although this decline is more driven seasonally by fewer working days in the month and reduced labor, there is a risk it gets misread by the market as the confirmation period of El Niño's impact on rough palm output, thereby forming a narrative-driven rally.
At present, El Niño signals have clearly strengthened: subsurface temperatures continue to warm, with anomalies already reaching 2.8°C, intensity likely in the very strong category, and its impact cycle may far exceed the conventional understanding of three to four months.
Persistent westerly anomalies continue to appear in the lower levels of the equatorial Pacific, with trade wind reversals even occurring in some regions; this vertical structure extends from the western equatorial Pacific to the central and eastern Pacific, forming a positive feedback mechanism—weakened trade winds deepen the eastern thermocline and block cold-water upwelling, further heating central and eastern Pacific sea surface temperatures, which in turn strengthens the atmospheric response.
The coupling of low-level wind fields with the atmosphere is becoming a key amplifier of El Niño's intensity escalation.
Chart: Subsurface sea temperature anomalies in the central and eastern Pacific, NOAA
Meanwhile, the positive Indian Ocean Dipole mechanism is forming: its mechanism lies in warmer sea temperatures in the eastern Indian Ocean and colder ones in the western Indian Ocean, causing air to sink over Sumatra and Kalimantan in Indonesia and blocking convection, thereby amplifying El Niño's drought effects in that region.
Past data show that a super-strong El Niño combined with a positive dipole mechanism can amplify drought intensity by 1.5-2 times; recently the IOD index has been observed touching the positive threshold of 0.44°C for three consecutive weeks.
Based on the above judgment, the timeline of production cuts is gradually becoming clear: Malaysia cuts at the end of this year, Indonesia cuts in April-May next year, and Malaysia cuts again at the end of next year, potentially forming a relatively long and continuous narrative of palm oil production declines.
Within this narrative structure, April-May may see the main upward wave, the period when the strongest production-cut expectations are injected, an expectation worthy of full discussion.
Demand side: India may be the upside surprise, biodiesel logic stable
India is the variable most worth focusing on in demand. India currently does hold relatively high vegetable oil inventories, with trackable August vegetable oil stocks already near 1 million tonnes, at a relatively high level since records have been kept; recently Indian domestic vegetable oil prices rose about 20%, combined with rupee depreciation, together forming a window for cutting import tariffs—soybean oil and palm oil import tariffs were cut by 5%, and sunflower oil tariffs by 10%.
More critically, sunflower oil supply has broken down: India's sunflower oil imports plunged to 200,000-300,000 tonnes in September-October 2026, with much of it still dependent on Argentine exports, and Russia-Ukraine exports nearly stalled; for the entire fourth quarter, India's sunflower oil imports may fall to 500,000-600,000 tonnes, a year-on-year reduction of nearly 300,000 tonnes.
In this process, India may choose to substitute the most cost-effective palm oil, and by extension, India's fourth-quarter palm oil import demand is expected to rise from 1.8 million tonnes a year earlier to 2.45 million tonnes, an increase of nearly 600,000 tonnes, which could become an important lever for destocking in Malaysia and Indonesia.
As the Diwali restocking window opens in early November, this marginal change deserves close attention.
According to Oil World estimates, global biodiesel + HVO production for January-December 2026 is projected at 69.2 million tonnes, up 6.4 million tonnes year-on-year; however, dragged down by downward revisions to US and Indonesian production estimates, the year-on-year increment has narrowed slightly from earlier projections.
By country, US 2026 production is revised down to 16.3 million tonnes, still up 3.1 million tonnes year-on-year, with the increase mainly from a recovery in HVO operations amid tight RIN supply; Indonesia, meanwhile, saw biodiesel production estimates cut to 14.8 million tonnes due to B50 mandatory blending falling short of expectations and high palm oil prices undermining the economics of enforcement.
Overall, global biodiesel expansion has not lost speed, but the feature that the marginal increment is shifting from "Indonesia's palm oil side" to "the US soybean oil side" has become clearer.
From the perspective of oils consumption structure, in the 2025/26 marketing year (October-September), the incremental demand for 17 oils used for biofuels is about 5.1 million tonnes, while food and other uses grew by only 3.3-3.4 million tonnes, with the energy side continuing to serve as the core driver of oils consumption growth.
Among this, US energy-sector soybean oil consumption is expected to rise by 2.1-2.2 million tonnes to 6.55 million tonnes, and combined with South American increments, global soybean oil fuel consumption increases by 2.6 million tonnes in total; global rapeseed/canola oil fuel consumption rises by 1.5 million tonnes to a record 10.1 million tonnes.
In conclusion, biodiesel's "industrial siphon" on vegetable oils is still intensifying, but Indonesia's B50 enforcement discount means palm oil biodiesel increments are below expectations, and the share of soybean oil and rapeseed oil as biodiesel feedstocks is rising; the price spread between oils and the pace of origin destocking will depend more on US RVO fulfillment and Indonesia's subsidy capacity rather than a single B50 narrative.
On biodiesel consumption, Indonesia's total palm oil consumption for 2026/27 is expected to rise to 23.1 million tonnes, with industrial oil reaching 15.2 million tonnes, of which biodiesel policy continues to advance—B40 mandatory blending is maintained in 2026, and B50 is in the testing phase.
To cover the price spread subsidy from the CPO fund, the government has raised the crude palm oil export levy to 12.5%; biodiesel capacity now stands at 22 billion liters, but the Middle East situation has pushed up diesel and methanol prices, bringing risks of methanol supply disruption and feedstock supply, affecting the pace of B50 progress.
Although POGO spreads impose capacity constraints, historical experience shows that when the POGO spread is at a low level while international oil prices (such as petrochemical fuel prices) are oscillating rather than falling sharply, it is highly likely to form bottom support for middle-stream prices.
In addition, Indonesia's push for B50 in the fourth quarter also constitutes an important supply-side variable.
Other oils: ample rapeseed output, soybean complex momentum weakening at the margin
The large increase in rapeseed output is a fairly key variable this year: Canadian production is expected to reach 22.5 million tonnes, EU production is expected to reach 21 million tonnes or even more, and Russia and Australia are likewise organizing production increase expectations.
Among them, Australian production has been revised, previously expected at only 6.15 million tonnes, but now multiple institutions forecast above 7.5 million tonnes; this has pushed Russia's production up from around 3 million tonnes five years ago to 7 million tonnes.
The combination of multiple factors may determine that the subsequent rapeseed supply will turn ample, and one of its pricing mainlines is rapeseed as a short allocation in overall arbitrage; on another side, the domestic persistent positive spread situation may be weakened, but the timing still needs verification.
On non-GMO rapeseed oil, rapeseed oil inventories in Sichuan are high, and a future China-Russia summit or leaders' meeting could trigger a shift in import policy, thereby forming a relatively large volume of new imports, with November being an important observation window.
Dubai rapeseed oil is likewise a potential new supply—previously Dubai rapeseed oil to China averaged about 20,000 tonnes per month, but over the past 10 months it has significantly decreased, at one point shrinking by 200,000-300,000 tonnes, with imports markedly reduced for nearly 10 consecutive months; this situation may now be breaking, with new supply forming, and the preliminary idea is to use it as a short allocation in arbitrage.
On the soybean complex, international market discussion of pressure release focuses on the Canadian rapeseed issue, while Indonesian fruit bunch replanting is drawing increasing attention.
The US RVO 100% allocation has basically formed a consensus, and the US RVO will most likely be met by trade, which constitutes an important expectation gap: while most domestic discussion still focuses on the bearish impact of US small refinery exemptions, most overseas players already lean toward the view that the previously exempted 770 million gallons will be 100% redistributed to large refineries' shares in the future.
US-Canada trade flows remain relatively stable. The optimistic logic for US biodiesel is fairly solid, with the main risk being the compliance timeline—the normal compliance point is February 1 each year, but in practice there are delays, with 2025 compliance delayed by 10 months thereafter, at about 2 billion gallons of production per month, which even with delay is sufficient to meet demand.
This is an important logic: the time to verify compliance may lag, thereby releasing production a few months later, and in this way the current gap may be satisfied through a certain degree of delay, with the gap not obvious.
Germany's carbon ticket supply issue also needs to be incorporated into balance sheet considerations.
In addition, IOUC will swap soybean oil, Europe's SME imports 150,000-200,000 tonnes from Argentina to Europe, and Europe goes to the US for arbitrage, but faces logistics problems from Rhine River water levels.
Market structure and observations
The current market's deep Contango (farther months more expensive) pricing faces the possibility of reversal, and positive spreads on monthly spreads can be used as a reversal signal.
Once the fourth-quarter production cuts are truly realized, the current pricing of the 1-5 spread may turn sharply or reverse, which is a position and spread trade opportunity worth focusing on with a favorable profit-loss ratio.
We are currently in an inventory-building phase. Going forward, attention should also be paid to the Malaysia-Indonesia spread: with Malaysian prices currently at a discount to Indonesian prices, whether Malaysia's exports will accelerate, and how the Malaysia-Indonesia spread drives Malaysia's export acceleration, thereby driving spread changes, are worth close tracking.
Indonesia's B50 push in the fourth quarter likewise constitutes a variable.
Regarding oils inventories, there is an important alternative interpretation: after China builds inventories, China's palm oil inventory build essentially corresponds to destocking at the origin.
In other words, the current pressure in China appears to be pressure on the surface, but in fact it helps the origin ease inventory pressure; this is merely a process of redistributing global inventory.
China's mid-stream inventories increased by 700,000-800,000 tonnes, and Indonesia effectively reduced inventories by an equivalent scale; but as soon as production cuts appear, this narrative will immediately reverse.
China's inventories rose from 400,000 tonnes to 1.2 million tonnes, basically corresponding to the reduction in Indonesian inventories, so high inventories are not an essential problem.
Judging when palm oil fundamentals shift from oversupply to a deficit will very likely be marked by a landmark event—namely, when China's mid-stream no longer finds profit in importing from Southeast Asia and the origin no longer gives favorable pricing to consuming countries, which will become an important trend reversal signal.
The RVO generation timing point for 2028-29 is also a key issue.
In addition, palm oil-related stocks can be used to gauge capital market expectations for El Niño intensity, which is a possible observation method—relevant names include Zanyu Technology, COFCO Sugar, and COFCO Tunhe, whose price performance can serve as a sentiment indicator.
Final thoughts
What a research report truly delivers to readers is not a listing of basic data such as prices and inventories, but reflection built on top of that data.
Before reading a research report, readers should have a basic cognitive framework about the data itself, knowing how it is generated, what it reflects, and where it sits in the market structure.
On this basis, the value of the research report becomes apparent: how we understand this data, how we explain the logic behind it, and how we deduce the future direction of prices from it.
It should be specially noted here that price data and inventory data look like objective facts, as if extracted from the market and stable in place.
But they are not static in essence. They are the result of games between people, the manifestation of a dynamic process at a certain instant.
The reason we are willing to treat them as relatively objective and less subjective things is that they have already been determined and manifested as readable numbers; but at the same time they are determined, they may also change and adjust at any time due to new games.
Data is merely a slice left by dynamic gaming, and we often stare only at the slice itself, ignoring the forces still flowing behind it.
Therefore, in research report discussion, facts and opinions should not be utterly separated. Facts already contain human judgment and gaming, and opinions are further reflection on these games.
The anchor that can truly help us reasonably predict future price evolution is precisely this kind of reflection—it lets us penetrate the surface of data and see how market participants act and adjust, thereby judging where prices may go next.
For this reason, a research report of weight does not merely present data, but continuously reflects on top of data and makes that reflection the core of analysis.
Continuing from the above, the core arena of truly weighty classrooms and research report writing lies not in knowledge dissemination but in the scene of criticism and reflection: come in with the most basic knowledge reserve and listen as I point out one by one—where the evidence is insufficient, where the interpretation of facts is biased, and which seemingly valid premise actually cannot withstand scrutiny.
Only when reflection is built on this foundation is it not empty talk.
Yet many young people today are exactly the opposite: they neither want to prepare knowledge nor patiently listen to you explain knowledge itself.
Science exams are simple and direct—standardized knowledge, and if you cannot solve a few problems, you get no score. This assessment method in turn reinforces an illusion: that knowledge can be measured by whether it is memorized.
Thus we see a common dilemma: the efficiency of knowledge acquisition is getting higher and the channels more convenient, but this precisely makes most people mistakenly believe knowledge has zero threshold.
Yet the real threshold has never lain in how much knowledge you possess, but in whether you have judgment and reflective ability.
Can you reassemble scattered knowledge into your own cognitive model, and can you let these models, through repeated collision and reorganization, ultimately grow into your own unique way of understanding, perspective on problems, cognitive ability, and expressive ability?
And this is precisely the most critical training in research report writing.
When we face price data and inventory data, what truly determines analytical value is not restating those manifested facts, but whether judgment can penetrate the surface of data and reflection can identify the direction behind dynamic gaming.
Facts are only slices; reflection is the anchor leading to future price evolution.
Researcher: Tian Yaxiong, Futures Trading Consulting Practice Information: Z0012209. Sina partner platform CITIC Construction Investment Futures account opening, safe and secure.
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