Core Viewpoint - The recent increase in palm oil prices is driven by multiple favorable factors, including supply concerns from Indonesia and strong domestic consumption in Malaysia, while a potential adjustment in prices is expected in the fourth quarter due to declining demand [1][4]. Supply and Demand Dynamics - The rise in palm oil prices is attributed to both supply and demand factors. Indonesia's low production, exacerbated by the government's seizure of illegal plantations, has raised supply concerns, potentially affecting future production levels [2]. - Malaysia's palm oil production in July was reported at 1.8124 million tons, a month-on-month increase of 7.09%, while exports rose by 3.82% to 1.3091 million tons. However, the actual production and ending inventory were lower than market expectations, alleviating fears of oversupply [2][3]. Domestic Consumption and External Demand - Malaysia's domestic consumption reached a five-year high of 482,700 tons in July, driven by stable food demand and increased consumption for biodiesel [3]. - Anticipation of India's Diwali festival has led to increased demand for palm oil, with expectations of significant purchases in September due to low domestic oil inventory levels [3]. Market Outlook - In the short term, palm oil prices are expected to remain strong, supported by the upcoming Indian festival and the Malaysian government's increase in export tax to 10% [4]. - However, in the medium to long term, the market may face limitations on price increases due to expected inventory accumulation and a potential decline in demand post-festival [4][5].

Investment Rating - The industry investment rating is optimistic [3] Core Insights - Palm oil is the largest vegetable oil in terms of production, consumption, and international trade, accounting for over 30% of total vegetable oil production. The main production countries are Indonesia, Malaysia, and Thailand, which together account for 87% of global palm oil production. Global palm oil consumption is expected to reach 77.22 million tons in 2024, a year-on-year increase of 3.6% [5][29][35] Market Background - Palm oil production is primarily concentrated in Indonesia, Malaysia, and Thailand, with Indonesia producing 46 million tons (59% of global production), Malaysia 18.7 million tons (24%), and Thailand 3.33 million tons (4%) in 2024. The total global palm oil production is projected to be 78.25 million tons [29][35] - Global palm oil consumption is concentrated in Asia and Europe, with Indonesia consuming 23.28 million tons (30%), India 8.8 million tons (11%), China 4.6 million tons (6%), and the EU 3.85 million tons (5%) in 2024 [35][39] Supply and Demand Analysis - Short-term supply is recovering, with Malaysia's palm oil production increasing by 12% year-on-year in April. However, long-term production growth potential is limited due to declining planting areas and aging oil palm trees in Malaysia. Indonesia's biodiesel policy is expected to drive consumption growth [6][57][66] - The demand for palm oil is supported by the biodiesel market, particularly in Indonesia, where domestic consumption has risen significantly due to biodiesel policies. The B40 policy is expected to add 2-3 million tons of palm oil consumption annually [66]