InfoSAWIT, KUALA LUMPUR – Malaysia’s crude palm oil (CPO) prices are expected to remain relatively firm during the second half of 2026 despite rising production and inventories, with concerns over a potential decline in yields linked to the development of El Niño providing support to the market.
Public Investment Bank Bhd’s research arm, PublicInvest Research, said expectations of weaker palm yields in Malaysia and Indonesia could help underpin CPO prices through the remainder of the year.
Malaysia’s palm oil inventories rose for the fourth consecutive month in July 2026, reaching their highest level in five months. Stocks increased 3.3% month-on-month to around 2.6 million metric tons, mainly due to higher production amid weaker domestic consumption.
Despite the increase in inventories, the stock-to-usage ratio declined from 13% to 12.5%. The movement suggests that the rise in stocks has not fundamentally altered the balance of the Malaysian palm oil market.
PublicInvest Research expects CPO prices to remain supported in the second half of 2026 as the market increasingly factors in the potential impact of El Niño on palm yields in both Malaysia and Indonesia.
“We expect CPO prices to remain supported in 2H26 amid concerns over weaker Malaysian and Indonesian palm yields due to the development of El Niño,” the research house said.
Malaysia Palm Oil Exports Rise 14.5%
On the demand side, Malaysia’s palm oil exports provided additional support to the market. Shipments rose 14.5% month-on-month in July 2026, driven primarily by stronger exports to the European Union, India and the Middle East.
Exports to the European Union increased 28.4%, while shipments to India rose 14.3%. The Middle East recorded the strongest growth, with exports surging 173.8%.
However, export performance across major destinations remained mixed. Shipments to China fell 51.2%, while exports to the United States declined 14.1%.
The contrasting performance across key markets indicates that global palm oil demand remains uneven. Nevertheless, stronger shipments to several major destinations are helping absorb part of Malaysia’s growing production.
Malaysian CPO Production Climbs 9.4%
On the supply side, Malaysian CPO production increased for the second consecutive month. Output reached around 1.8 million tons in July 2026, up 9.4% from the previous month.
Production in Peninsular Malaysia rose 10.6%, while output in East Malaysia increased 7.9% month-on-month.
Despite the monthly increase, Malaysia’s fresh fruit bunch (FFB) yield during January-July 2026 showed a slight decline. Average FFB yield stood at 9.27 tons per hectare, indicating continued productivity pressure across plantations.
The development remains an important factor for analysts assessing the outlook for Malaysian palm oil prices during the second half of the year.
Palm Oil Industry Enters Stronger Earnings Cycle
PublicInvest Research also sees Malaysia’s palm oil industry entering the early stages of a stronger earnings cycle, supported in part by higher average CPO prices during the second quarter of 2026.
Malaysia’s average CPO price reached RM4,523 per ton in the second quarter, up from RM4,071 per ton during the same period a year earlier.
The increase came despite Malaysian CPO production falling 7.1% year-on-year in the second quarter to approximately 4.7 million tons.
Higher selling prices, the potential risk of lower yields due to El Niño and stronger exports to several key markets could provide a relatively favorable backdrop for the palm oil industry during the remainder of 2026.
Going forward, production trends, weather developments, inventories and export performance are expected to remain key factors shaping the direction of Malaysian CPO prices through the end of the year. (T2)
Source: InfoSAWIT
