Report Title - Fuzzy Demand Drivers and Flocking Supply - Outlook for the Annual Vegetable Oil Market in 2026 [1] Report Date - December 15, 2025 [1] Report Author - Li Junyu, Investment Consulting Practitioner Qualification Number: Z0021380, lijunyu@gtht.com [2] Report Investment Rating No investment rating was provided in the report. Core Viewpoints - Vegetable oils are in a situation of weak current reality with improving expectations. In the 25/26 season, the inventory-to-sales ratio of the four major vegetable oils increased slightly. The year 2026 is a period of hibernation and preparation for a breakthrough. The inventory increase of only 1 million tons is easily affected by the US biodiesel policy for soybean oil and unexpected palm oil production. Starting from the first quarter of next year, there is room for palm oil, domestic soybean oil, and US soybean oil to reverse the weak reality. However, the uncertainty of whether palm oil production can increase regularly makes the supply trading full of variables and unsmooth. It is necessary to observe the performance during the low-production period. After the high-production trading is fully priced in, it is advisable to build long positions in palm oil 09 contracts on dips. Soybean oil can also be lightly allocated long in the first quarter. Rapeseed oil prices face the risk of being relatively weak among varieties, and it is mainly recommended to build short positions in rapeseed oil 05 contracts driven by events [2]. Summary by Directory 1. Review of the Vegetable Oil Market in 2025 - **First Stage (December 2024 - Mid-to-Late January 2025)**: The supply pressure of new Brazilian crops and the depreciation of the real led to a continuous decline in Brazilian soybean premiums since December. The US soybean oil market was affected by pessimistic expectations of the biodiesel policy and declined continuously. Palm oil lacked marginal positive factors. As a result, the entire vegetable oil and oilseed sector was under pressure. Palm oil started a continuous decline after reaching a previous high due to the lack of marginal positive factors. During this period, US soybean oil and crude oil also adjusted significantly. Concerns about the decline in export demand from Malaysia and Indonesia, doubts about whether B40 could be fully implemented, and the possibility that the tax increase associated with B40 might fall short of expectations led investors to view the subsequent driving forces of palm oil with caution [7]. - **Second Stage (Early February - End of March 2025)**: The USDA report at the beginning of the year was unexpectedly positive, leading to a continuous rise in US soybeans. The pessimistic expectations of the US soybean oil biodiesel policy were fully priced in. The cold wave problem in US fuel made US soybean oil temporarily strong. Additionally, the short - term import restrictions on raw materials only provided emotional support to US soybean oil, laying the foundation for the rise in February. After the Spring Festival, soybean oil showed strong momentum, supported by import costs due to slow harvesting in Brazil, unfavorable weather in Argentina, low soybean arrivals in China in the first quarter, and tight near - term supply. The MPOB supply - demand data showed that Malaysia's palm oil production in January was significantly lower than expected, and production in February was also expected to remain low, with inventory difficult to improve. Combined with the upcoming Ramadan, palm oil had strong fundamental support among vegetable oil varieties. At the same time, rumors of an export ban in the producing areas stimulated palm oil to move strongly due to supply concerns. In March, China's 10% tariff increase on US soybeans stirred market sentiment. The potential for the US - Europe tariff tension to prompt Europe to shift its procurement of soybean - related products to South America might lead to an increase in the potential import cost of soybean oil, causing vegetable oils to maintain a relatively strong pattern in a volatile market [8]. - **Third Stage (April - Mid - June 2025)**: Palm oil fluctuated between strong current reality and weak expectations, and the market had significant differences on when the inflection point would arrive, leading to intense long - short battles. During the Tomb - Sweeping Festival, the US reciprocal tariff policy had a systematic impact on the global financial market, causing international oil prices to decline sharply, and the three major vegetable oils followed suit. After the market sentiment stabilized, palm oil traded the recovery of supply and export pressure, and the vegetable oil market entered a bottom - building phase, waiting for new contradictions in the third quarter [9]. - **Fourth Stage (Late June - Early October 2025)**: Driven by both domestic and international factors, vegetable oil varieties started the first smooth upward trend this year, with palm oil rising by 2,000 points. On the demand side, the negative factors such as the cumulative year - on - year decline in apparent demand in China and India, negative growth in European diesel consumption, and cumulative year - on - year decline in US biodiesel production did not support short - selling vegetable oils in the second half of the year. On the supply side, since the second quarter, the market's pessimistic sentiment about Malaysia's palm oil inventory reaching a high of over 2.3 million tons this year has gradually subsided. The high production from April to May released the negative factors in advance. Coupled with the potential production risks during the high - production period from July to August, the price of palm oil reached its low point earlier. Internationally, the positive news of the US RVO policy in mid - June injected upward momentum into the vegetable oil sector. The increase in European carbon targets and changes in the double - carbon ticket rules led to an upward trend in HVO prices since the end of June. Meanwhile, geopolitical risks in the Middle East boosted oil prices, and the European diesel crack spread reached a historical high. Driven by both domestic and international factors, palm oil started a two - month upward trend, rising by 2,000 points. Subsequently, from September to mid - October, palm oil oscillated in a very narrow range between 9,200 and 9,600, waiting for further guidance during the low - production season [10]. - **Fifth Stage (Mid - October 2025 - Present)**: The US biodiesel policy has been delayed, and palm oil maintained high - yield power in the fourth quarter. The trading momentum of the strong expectations under the weak reality was difficult to sustain. US soybean oil gradually fell back to the platform on June 13, and the de - stocking time of Malaysian palm oil was repeatedly postponed. Palm oil prices completely gave back the gains since June, falling back to the price platform in June, creating the second smooth downward trend this year. However, this round of decline was entirely caused by the unexpected over - production of palm oil itself. Soybean oil prices were still supported by the slow ship - buying under the China - US economic and trade relations and the logic of crushing profit repair. Therefore, the soybean - palm oil price spread rebounded significantly during this period, rising by nearly 1,000 points; rapeseed oil gradually gave back the premium caused by the China - Canada policy disturbance, and the rapeseed - soybean oil price spread also declined by about 500 points [11]. 2. Outlook for the Supply Side of Vegetable Oils in 2026 - **Overall Supply and Demand**: In the 25/26 season, the global production of the four major vegetable oils is expected to increase by about 4 million tons to 210 million tons, with the growth rate slowing down compared to the previous two seasons. The global production of soybean oil is expected to increase by 1.5 million tons, palm oil by 1.8 million tons, rapeseed oil by 0.4 million tons, and sunflower oil to remain flat year - on - year. The global consumption of the four major vegetable oils is expected to increase by about 5.5 million tons to 209 million tons, recovering from the negative growth in the 24/25 season. This is mainly due to the recovery of India's vegetable oil consumption, the implementation of PSO - B50 in Indonesia in the second half of the year, the full - year plan of B15 in Brazil, and the rebound of the US biodiesel policy. As a result, the global industrial demand is expected to increase by 4.4 million tons year - on - year, including a 1.2 - million - ton increase in palm oil, a 2 - million - ton increase in soybean oil, and an 0.8 - million - ton increase in rapeseed oil. The global ending inventory of the four major vegetable oils is expected to increase by 1 million tons to 25.65 million tons, and the inventory - to - sales ratio is expected to rise from 12.22% in the previous season to 12.25%. However, the main inventory increase is contributed by palm oil, while soybean, rapeseed, and sunflower oils remain in tight balance. The rapid inventory accumulation period of palm oil has been fully priced in the fourth quarter of 2025, and the pressure of vegetable oil inventory reconstruction has been released in advance [19][20]. - **Palm Oil** - **Malaysia**: From January to November 2025, Malaysia's cumulative palm oil production increased by 3.37% year - on - year, and the full - year production is expected to approach 20.2 million tons, an increase of about 0.85 million tons compared to 2024. The continuous high production in the past two years has not only led to a decline in palm oil prices in the fourth quarter but also raised concerns about the supply inflection point. The high production in October and November may be due to less rainfall, the development of mechanized operations, and the increase in foreign labor. Based on the current tree - age structure and historical rainfall conditions, the production potential in 2026 is expected to decline slightly compared to 2025, but considering the positive impact of labor on production, the production in 2026 is estimated to be in the range of 19.6 - 19.8 million tons. Attention should be paid to the possible low - production situation from March to May next year [27][28][30]. - **Indonesia**: From January to September 2025, Indonesia's cumulative palm oil production was 43.33 million tons, an increase of 11% year - on - year, with an increase of 4.55 million tons in the first three quarters. The full - year production is estimated to be about 57.5 million tons, an increase of 4.8 million tons year - on - year. For the production in 2026, two main factors need to be considered: the improvement of the tree - age structure and the production capacity release cycle due to the increase in the planted area in the early stage, and the impact of the transfer of 3 million hectares of illegal plantations to state - owned companies on the unit yield. Overall, the production in 2026 is expected to increase to 58.68 million tons in the GAPKI statistics. However, the relatively dry weather in July this year may lead to lower - than - expected production from April to May next year [39][40][43]. - **Soybean Oil**: In the 25/26 season, the global soybean oil production is expected to increase to 71.27 million tons, an increase of 1.46 million tons compared to the previous season, with a significantly slowed growth rate. The global soybean production in the 25/26 season has a small increase compared to the previous year. Except for the United States, the increase in soybean crushing volume in other countries is not significant. The United States' soybean crushing capacity has an average annual growth rate of about 3 - 5% in recent years. Under the background of high crushing profits and high operating rates, the crushing volume in the 25/26 season is expected to increase by 3 - 4 million tons, and the production of soybean oil is expected to increase by about 0.65 million tons. In Brazil, with the significantly higher old - crop soybean inventory compared to the same period last year, the crushing volume is expected to increase by more than 1 million tons, corresponding to an increase of 0.2 million tons in soybean oil production. Argentina's production is slightly reduced, and China's soybean oil production is expected to increase by 0.6 million tons in the 25/26 season due to the high supply of raw materials and the high cost - effectiveness of soybean oil. The global demand for soybean oil in the 25/26 season is expected to increase to 70.99 million tons, an increase of 2.29 million tons compared to the previous season, higher than the production increase. The change in the US biofuel policy has a great impact on the industrial demand for US soybean oil next year. The difference between the most pessimistic and the most optimistic scenarios is as high as 2 million tons. Even in the most pessimistic scenario, the US demand for soybean oil in the 25/26 season will increase by at least 1.4 million tons to 13.6 million tons, including 7.1 million tons of industrial consumption. The final global ending inventory of soybean oil is expected to increase by 0.28 million tons, and the inventory - to - sales ratio will only slightly increase from 10.34% in the previous season to 10.40%. In the continuation of the soybean bear market, soybean oil first regains demand through price adjustment, greatly weakening the contradiction of inventory accumulation at the margin [55][56]. - **Rapeseed and Sunflower Oil** - **Rapeseed**: In the 2025/26 season, the global rapeseed production is expected to increase significantly year - on - year, and the global rapeseed supply is expected to become looser. According to the USDA's November forecast, the global rapeseed production in the 2025/26 season will increase by 6.27 million tons compared to the 2024/25 season. The rapeseed production in the EU, the main consumer region, is expected to increase by more than 3 million tons year - on - year. Among the main exporting countries, except for Ukraine, the production of other major exporting countries will increase. However, the beginning inventory of rapeseed in the main exporting countries has decreased significantly year - on - year, and the supply pressure of global rapeseed is expected to be postponed. The effective supply (beginning inventory + production) of global rapeseed in the 2025/26 season will increase by 4.15 million tons year - on - year, with an increase rate of 4.2% [65][66]. - **Sunflower Oil**: The production and crushing estimates of sunflower seeds in the EU, Russia, and Ukraine have been revised down again, suppressing the growth of global sunflower oil production this season. The current forecast for global sunflower oil production in the 25/26 season is about 21 million tons, and the year - on - year production increase has shrunk from the initial 2 million tons to almost zero. The sunflower oil supply in Europe, Russia, and Ukraine is much lower than expected, in contrast to the increasing production in Argentina. From January to October 2025, Argentina's sunflower oil exports increased by 30% year - on - year to a multi - year high of 1.36 million tons, and its market share in multiple importing countries has continued to expand. Argentina's sunflower oil exports are expected to further increase in 2026, although recent rainfall has hindered local production by about 0.4 million tons. Affected by this, the price of sunflower oil for near - month delivery remains strong and maintains a premium over other major vegetable oils in the European market [67][68]. 3. Outlook for the Demand Side of Vegetable Oils in 2026 - **China**: In terms of total demand, the domestic consumption of vegetable oils has not shown a counter - trend increase. From January to October 2025, the cumulative apparent consumption of the four major vegetable oils in China was 22.755 million tons, a decrease of 1.38 million tons compared to the same period last year, with an average monthly decrease of 0.14 million tons. In terms of variety structure, soybean oil's demand share has further increased due to its cost - effectiveness. From January to October 2025, the cumulative apparent consumption of domestic soybean oil was 16.94 million tons, an increase of 0.61 million tons compared to the same period last year, and the monthly average share rose to over 70%. The cumulative apparent consumption of palm oil was 2.42 million tons, a decrease of 1 million tons compared to the same period last year, and the monthly average share fell to below 15%. The cumulative apparent consumption of rapeseed oil was 2.9 million tons, a decrease of 0.42 million tons compared to the same period last year, and the monthly average share fell to below 15%. The cumulative apparent consumption of sunflower oil was 0.47 million tons, a decrease of 0.06 million tons compared to the same period last year, and the monthly average share remained at 2 - 3%. The annual apparent demand for soybean oil exceeded 20 million tons (20.4 million tons in the 24/25 season) and is expected to further increase to 20.7 million tons in the 25/26 season. The palm oil consumption in China is expected to remain flat year - on - year, with an estimated annual demand of about 3.15 million tons. The demand for rapeseed oil in China is expected to continue to decline to about 3.4 million tons in the 25/26 season. Overall, the demand for the four major vegetable oils in China decreased by 1.3 million tons to 28.1 million tons in the 24/25 season and is expected to further decline to 27.8 million tons in the 25/26 season [72][73][75]. - **India**: From January to October 2025, India's cumulative imports of edible vegetable oils were 13.07 million tons, a decrease of 0.35 million tons compared to the same period last year. Among them, palm oil imports were 6