InfoSAWIT, KUALA LUMPUR – Crude palm oil (CPO) prices are expected to remain firm through the second half of 2026, supported by growing supply risks, geopolitical uncertainty and strong demand from Indonesia’s biodiesel programme.

Analysts believe the combination of a strengthening El Niño pattern, potential disruptions to global vegetable oil supplies and rising domestic consumption in Indonesia could provide further support to palm oil prices, while also improving the outlook for plantation stocks.

According to The Edge Malaysia, several analysts expect CPO prices to remain above RM4,000 per tonne until the end of the year, although elevated palm oil inventories in Malaysia could limit further gains.

CIMB Securities expects CPO prices to trade between RM4,400 and RM4,600 per tonne in the near term.

The outlook is supported by geopolitical risks, the potential impact of El Niño on palm oil production and stronger demand linked to Indonesia’s mandatory B50 biodiesel programme.

According to CIMB, possible disruptions to commodity shipments from Russia and Ukraine could reduce the availability of sunflower oil in the global market. Such a development may encourage buyers to turn to palm oil as an alternative vegetable oil.

Demand could also receive additional support from India as the country enters its festive season, a period traditionally associated with higher consumption of cooking oil and other edible oil products.

El Niño Could Pressure Palm Oil Output

Weather remains a major factor in the market outlook. CIMB expects strengthening El Niño conditions from around October to potentially affect oil palm productivity and production across Southeast Asia.

However, the full impact on supply is expected to become more visible in 2027 due to the time lag between adverse weather conditions and their effect on fresh fruit bunch output and palm oil production.

Reflecting these risks, CIMB raised its average CPO price forecasts for both 2026 and 2027 by RM50 per tonne.

The firm now expects average CPO prices of RM4,450 per tonne in 2026 and RM4,550 per tonne in 2027.

The revised outlook reflects rising supply risks associated with El Niño and continued uncertainty surrounding global geopolitical developments.

Indonesia’s B50 Programme Supports Palm Oil Demand

On the demand side, Indonesia’s mandatory B50 biodiesel programme is expected to provide additional support for domestic CPO consumption.

Higher biodiesel demand could increase domestic palm oil absorption and tighten the volume available for export markets.

The market outlook is also supported by a lower production estimate for Indonesia. The United States Department of Agriculture (USDA) revised its forecast for Indonesian palm oil production in the 2026–2027 period to 47.2 million tonnes, taking into account the potential impact of dry weather conditions.

Indonesia’s palm oil inventories are also projected to decline, with stocks expected to fall by around 28% year-on-year to 3.1 million tonnes.

Meanwhile, Public Investment Bank expects average CPO prices to remain around RM4,400 per tonne throughout 2026 and 2027.

High Malaysian Inventories Could Limit Further Gains

Despite the generally positive outlook, high palm oil inventories in Malaysia remain a key risk for the market.

TA Securities reported that Malaysian palm oil stocks reached 2.63 million tonnes in July, exceeding market expectations and potentially limiting the pace of further price gains.

The increase in inventories was mainly attributed to higher production and lower domestic consumption, which outweighed improvements in export performance.

On a year-on-year basis, palm oil inventories rose 24.3%, while exports increased by 4.8%. Production, domestic consumption and imports, meanwhile, declined by 1.1%, 19.5% and 6.9%, respectively.

TA Securities has maintained its average CPO price forecast at RM4,300 per tonne for 2026.

With weather risks, geopolitical uncertainty, Indonesia’s biodiesel demand and Malaysia’s inventory levels all influencing the market, CPO prices are expected to remain highly sensitive to changes in global supply and demand throughout the second half of 2026. (T2)