Palm Oil Hits Three Month Low as Indonesia Seeks US Zero Tariff on Key Exports

Market moves as prices slide and Jakarta seeks tariff relief

Palm oil futures fell to their lowest level in nearly three months as a stronger Malaysian ringgit, softer rival oils, and cooling demand weighed on prices. Benchmark contracts slipped about 1.7 percent to trade below 4,250 ringgit per tonne on Thursday, the fourth straight session of losses. Over the past month futures have eased roughly 2.9 percent and are down about 9.2 percent year on year, according to trading data that tracks global benchmarks. The slide comes as Indonesia, the world’s largest palm oil producer, presses Washington for zero tariff access on palm oil, cocoa, and rubber, a strategy meant to match Malaysia’s recent breakthrough with the United States.

The currency backdrop is a key driver. When the ringgit strengthens, palm oil priced in ringgit becomes more expensive for buyers using other currencies, which can curb purchasing. Pressure from other edible oils has added to the decline, with soybean oil and other rivals trading lower in Dalian and Chicago. Seasonal patterns are also at work. As winter approaches, consumption of palm-based products typically slows in big buyers such as India and China, where importers often reduce purchases after building inventories ahead of the festive season.

On the supply side, Indonesia’s output is set to rise toward about 56 million metric tons this year, according to industry data, exceeding earlier expectations. Export momentum has been mixed. Shipments from Oct. 1 to Oct. 25 edged down by roughly 0.3 to 0.4 percent from the previous month, based on cargo surveyor tallies. There are some supportive signals in the broader trade environment. The White House has flagged optimism about talks with Beijing, with US President Donald Trump speaking positively about prospects for a trade truce with Chinese leader Xi Jinping. In Southeast Asia, Malaysia secured zero tariffs for palm oil, cocoa, and rubber in a new deal with the United States, even as a general 19 percent tariff still applies to other Malaysian goods. Jakarta wants the same treatment and says its talks with Washington are nearing the finish line.

Indonesia’s chief negotiator, Coordinating Minister for Economic Affairs Airlangga Hartarto, said discussions with the United States will resume after the Asia Pacific Economic Cooperation Summit in South Korea. He described most of the agreement as complete and said the focus has moved to final legal drafting, with the goal of completion by November 2025.

What is driving the price slump?

Three forces are pulling palm oil lower this week. First, currency strength in Malaysia is raising the local price of futures in global terms. Second, commodity traders are reacting to softness in rival vegetable oils. Price spreads among palm, soybean, rapeseed, and sunflower oils drive constant substitution in food manufacturing, and a drop in one often drags on the others. Third, buying patterns have shifted as winter approaches in key markets, lowering near term demand.

Currency moves and substitution across oils

Palm oil is priced in ringgit on the Bursa Malaysia. When the ringgit rises against the dollar, international buyers face a higher effective price. That can defer spot purchases and slow new tenders. At the same time, edible oil users, from large food companies to smaller refiners, compare palm with soybean, sunflower, and rapeseed oil. A downturn in Chicago Board of Trade soybean oil or in China’s Dalian markets can prompt food makers to switch blends and buy less palm. These cross market moves often play out quickly through arbitrage and hedging.

Seasonal demand patterns

Palm oil’s semi solid nature at room temperature makes it attractive for many food applications, but it can be less favored in colder months. In India and China, importers often accelerate buying ahead of festivals, then slow purchases as winter approaches. With inventories comfortable in both markets, traders report a typical seasonal soft patch. That helps explain why spot buying has not picked up even as futures have pulled back.

Inside the Indonesia US tariff talks

In early August, the United States set a general 19 percent tariff on Indonesian goods after earlier discussions cut a higher rate. Indonesian officials have sought exemptions for goods the United States does not produce domestically, most notably palm oil, cocoa, and natural rubber. Airlangga Hartarto, who leads Indonesia’s negotiating team, says the two sides have agreed in principle to remove the tariffs on those goods once the legal text is finalized.

He told reporters that almost all technical elements were settled, and that legal drafting is the final hurdle before the agreement can be signed. He added that the targeted outcome is tariff treatment at zero or close to zero for palm oil, cocoa, and rubber.

Airlangga Hartarto, Indonesia’s coordinating minister for the economy and chief negotiator, described the state of play in Jakarta.

We have actually managed to finish almost every part of the agreement. However, we still have to do the legal drafting.

In laying out the expected treatment for palm oil, cocoa, and rubber, he summarized the aim for the tariff line.

The tariff will be zero or close to zero.

The talks have also included commercial and investment cooperation. Jakarta has offered purchases of American crude oil, liquefied petroleum gas, aircraft, and agricultural products. Indonesian officials say they are open to US investment in energy infrastructure including fuel storage facilities, working with the sovereign wealth fund and state energy company Pertamina. Indonesia has also proposed very low tariffs on most US goods entering its market. The strategy mirrors elements seen in Malaysia’s recent deal, in which Washington granted zero tariffs on key commodities while retaining the general rate on other goods.

How would zero tariffs change trade flows?

Tariffs are a tax paid at the border. Removing a 19 percent import tariff has a visible effect on the landed cost of palm oil in the United States. With prices near 899 dollars per tonne, a 19 percent tariff adds roughly 171 dollars per tonne before freight and handling. Eliminating that charge would make Indonesian shipments cheaper from the perspective of US buyers, improving margins for importers or lowering the end price for food manufacturers and consumer goods firms.

The United States is not Indonesia’s largest customer, but it is a stable, high value market. Indonesia shipped about 1.39 million tons of palm oil to the United States in 2024. The share is far smaller than India or China, yet the US is attractive because of its diversified demand across food, household, and industrial uses. A zero tariff deal could lift Indonesian volumes to the United States and help Jakarta defend market share against Malaysia, which already enjoys zero tariffs on those commodities.

Potential gains and watch points

Indonesian plantations and refiners could see improved netbacks on US bound cargoes. US snack makers, instant noodle producers, soap and cosmetics brands, and biodiesel blenders could benefit from lower feedstock costs. Traders might price in stronger US demand, which could lend support to futures after the current soft patch. There are practical issues to watch. The exact start date matters for contracts already on the water. Any snapback clause that allows Washington to restore tariffs in case of disputes would add uncertainty. Market participants will also monitor how the deal interacts with existing long term supply arrangements and Malaysia’s position.

Malaysia’s lead and regional stakes

Malaysia’s agreement with the United States granted zero tariffs on palm oil, cocoa, and rubber while a 19 percent general tariff remains on other Malaysian goods. That created a direct competitive benchmark for Indonesia. Industry analysts say Jakarta needs to secure equal treatment to keep a level playing field in the American market.

Bhima Yudhistira Adhinegara, executive director at the Center of Economic and Law Studies, said Malaysia’s success should encourage Indonesia to bargain harder and to widen the scope of its requests.

Looking at the palm oil issue, Malaysia can get a zero percent tariff, meaning Indonesia should use its bargaining power more effectively.

He added that Indonesia should broaden the talks beyond commodities.

Indonesia should push for major tariff reductions on garments and footwear since those two commodities account for a large share of our exports to the United States.

Indonesia still dominates the US palm oil market with an estimated 85 to 90 percent share. Eddy Martono, chairman of the Indonesian Palm Oil Association, said the industry does not face the same boycott pressure in the United States that it often encounters in Europe, which helps support Indonesia’s competitive position.

We do not face the level of negative campaigns in the United States that we see in Europe, so our market position there remains strong.

Demand outlook in key buyers

India and China remain the most important drivers for price formation. In India, the food sector chooses among palm, soy, and sunflower oil based on relative prices and seasonal usage. High stocks built before recent festivals reduce near term import needs. In China, signs of a slower economy have curbed discretionary consumption, while crush margins and stock levels guide purchasing of rival oils that influence palm demand. A stronger ringgit limits opportunistic buying by some importers who pay in dollars.

In the United States, end users span snack foods, baked goods, personal care items, and fuels. A removal of tariffs would encourage some substitution toward palm oil, especially when spreads versus soybean oil widen. Longer term, Indonesia’s domestic biodiesel blending program supports steady local consumption, which can offset export volatility. That policy backdrop helps stabilize farmer incomes but can tighten export availability when domestic blending increases.

Sustainability and the EU rulebook

Trade policy is only one part of the palm oil story. Environmental compliance is increasingly decisive for market access. The European Union and Indonesia recently concluded a broad trade pact that aims to phase in tariff relief for most Indonesian exports by 2027. Palm oil, however, faces separate deforestation rules that begin to bite from December, requiring proof that products do not come from recently cleared land. Large companies can often provide traceability documentation, but smallholders, who manage more than 40 percent of Indonesia’s oil palm plantations, may find the process costly and complex.

Industry leaders in Jakarta have urged rapid progress on a national traceability system. Without that, some shipments risk delays or rejection in Europe. The United States does not apply the same deforestation regime, which partly explains the more supportive stance toward Indonesian supply there. Even so, consumer brands increasingly apply their own sourcing standards. Meeting credible sustainability criteria will remain a commercial requirement for access to premium buyers across all regions.

What industry players are watching next

Short term, traders will track the ringgit, soybean oil in Chicago, and logistics flows from Indonesia and Malaysia. Any rebound in rival oils could temper the downside for palm. On the supply side, weather in Southeast Asia can shift yield expectations, and the sector remains sensitive to rainfall patterns that affect harvesting and fruit oil content.

On policy, the next checkpoints are the post APEC resumption of Indonesia US negotiations and the legal drafting work that precedes a formal announcement. Market participants will also watch any updates on reciprocal trade commitments and investment cooperation that underpin the deal. Cargo surveyor data for October will help confirm whether the recent export dip is temporary or a sign of slower demand heading into winter.

The Bottom Line

• Palm oil futures fell to a near three month low, driven by a stronger ringgit, softer rival oils, and seasonal demand.
• Indonesia is negotiating zero tariffs on palm oil, cocoa, and rubber with the United States, aiming to match Malaysia’s deal.
• Airlangga Hartarto says most elements are complete, with legal drafting and post APEC talks ahead of targeted completion in November 2025.
• Removing a 19 percent US tariff would cut about 171 dollars per tonne at current prices, improving landed costs for US buyers.
• Indonesia shipped around 1.39 million tons of palm oil to the United States in 2024, a smaller share than India or China but an important market.
• Analysts urge Jakarta to broaden talks to apparel and footwear, while industry groups expect Indonesia to hold its US market share.
• EU deforestation rules tighten from December, increasing the need for traceability, a bigger challenge for smallholders than for large firms.
• Key signals ahead include ringgit moves, soybean oil prices, Indonesian shipment data, and the timing of any final US tariff announcement.