InfoSAWIT, KUALA LUMPUR – Global palm oil market fundamentals are expected to remain supportive in the second half of 2026, with the Malaysian Palm Oil Council (MPOC) projecting crude palm oil (CPO) prices to trade between RM4,400 and RM4,650 per ton throughout July. The outlook is underpinned by tightening supply prospects in Indonesia and growing concerns over a potential El Niño weather event.
According to MPOC, recent developments suggest a structural shift in the balance of global vegetable oil supply and demand that could sustain palm oil prices in the coming months.
Malaysia’s palm oil production declined 6.9 percent month-on-month in May 2026 to 1.51 million tons, reflecting a temporary biological slowdown following a period of strong output between October 2025 and March 2026.
MPOC noted that fewer harvesting days due to two national public holidays during May also contributed to the production decline.
On the trade side, Malaysian palm oil exports softened during the month as purchasing activity slowed amid heightened price volatility experienced in March and April.
Despite the monthly slowdown, cumulative exports for January–May 2026 increased by 783,000 tons, or approximately 13.8 percent, compared with the same period last year. India, Kenya, and Vietnam accounted for the bulk of the growth.
Africa and ASEAN Emerging as Key Growth Markets
MPOC highlighted Sub-Saharan Africa and ASEAN as increasingly important destinations for Malaysian palm oil exports.
During the first five months of 2026, these regions absorbed roughly 36 percent of Malaysia’s total palm oil exports, compared with around 25 percent five years ago. The trend reflects Malaysia’s successful efforts to diversify export markets amid intensifying competition in the global vegetable oil sector.
Indonesian Supply Tightening Expected
MPOC expects Indonesia’s exportable palm oil surplus to tighten from late third quarter into the fourth quarter of 2026.
The anticipated reduction is linked to the implementation of the B50 biodiesel mandate beginning in July, relatively stagnant production growth, and rising domestic consumption.
Oil World estimates Indonesia’s palm oil production will remain largely unchanged at around 49.4 million tons this year. However, combined exports and domestic consumption during the first four months of 2026 increased by approximately 2.2 million tons, or 15 percent.
This development could encourage global buyers to shift a larger portion of their sourcing to Malaysia in search of more stable supplies.
MPOC also warned that rising fertilizer prices, partly driven by geopolitical tensions between the United States and Iran, may affect fertilizer application rates among growers in both Indonesia and Malaysia, potentially impacting future yields.
El Niño Risks Could Support Prices
Looking ahead, MPOC sees El Niño as one of the primary factors likely to support palm oil prices.
Although plantations in Indonesia and Malaysia have not yet experienced significant weather-related disruptions, the probability of a stronger El Niño emerging from July or August continues to increase.
Drier conditions across Southeast Asia, Australia, and India could eventually affect palm oil production, although the impact typically becomes visible nine to twelve months after the onset of weather stress.
Nevertheless, MPOC cautioned that upside price potential may be capped by abundant vegetable oil inventories in major importing countries.
India’s vegetable oil stocks reached 2.2 million tons in May, the highest level in 17 months, while China’s inventories approached 2 million tons, marking the highest level recorded so far in 2026.
In addition, biodiesel economics have weakened as gasoil prices now trade below palm oil futures, reducing the attractiveness of CPO as an energy feedstock.
Despite these challenges, MPOC expects CPO prices to remain relatively firm throughout July, although gains may be moderate due to elevated global vegetable oil inventories. (T2)
