Weather, energy markets to keep CPO above RM4,700: MPOC

KUALA LUMPUR: Crude palm oil (CPO) prices are expected to stay above RM4,700 a tonne through the rest of 2026, supported by weather-related supply risks and favourable energy markets, the Malaysian Palm Oil Council (MPOC) said.

MPOC said the main downside risks to prices are a decline in energy prices and further stock accumulation, as palm oil production typically reaches its seasonal peak in September or October.

Malaysia's palm oil output rose 1.4 per cent month-on-month to 1.81 million tonnes in August, supported by higher fresh fruit bunch collection and an improved oil extraction rate from July.

However, production remained below year-earlier levels for the sixth consecutive month, extending the year-on-year decline that began in March.

Palm oil exports increased by 806,000 tonnes to 10.4 million tonnes in the first eight months of 2026. August exports, however, fell 7.5 per cent from July to 1.29 million tonnes, dragged by weaker shipments to South Asia and the Middle East.

Despite the monthly decline, full-year exports are projected at 16 million tonnes, up 5.2 per cent from 2025.

MPOC said the combination of higher production and weaker exports pushed Malaysian palm oil stocks to 2.82 million tonnes in August, although it expects production and inventories in both Malaysia and Indonesia to ease in the coming months.

The outlook for global vegetable oils was mixed in September, with Malaysian palm oil recording the strongest gain of 3.5 per cent, followed by Argentine soybean oil at 3.3 per cent.

Argentine sunflower oil prices fell 6.1 per cent, while European rapeseed oil slipped 0.4 per cent. MPOC attributed the sharp decline in sunflower oil mainly to increasing supply pressure as Ukraine and Russia entered their sunflower seed harvesting season in September.

Weather is emerging as a key risk to palm oil supply, with drier conditions associated with El Nino intensifying across Malaysia and Indonesia since early August.

MPOC said the impact of weather conditions on palm oil production typically becomes evident six to nine months later, raising concerns over supplies in 2027.

Indonesia's rainfall was about 20 per cent below average in July and 60 per cent below average in August, while Malaysia recorded rainfall about 30 per cent below average last month.

Oil World forecasts Indonesia's palm oil production to fall by 1.9 million tonnes in 2027, while Malaysian output is expected to decline by 0.7 million tonnes.

Indonesia's exports are also projected to fall by almost three million tonnes next year, reflecting stronger domestic demand from higher biodiesel blending and lower production.

Malaysia's exports, meanwhile, are forecast to remain stable at around 16 million tonnes in 2027, potentially strengthening its role as a key supplier to the global market.

MPOC said the current elevated stock level is likely to be temporary, with the market facing a tigher supply-demand balance next year.

Global production of the four major vegetable oils is forecast to increase by 3.1 million tonnes in 2027, while consumption is expected to rise by 6.1 million tonnes, creating a projected supply shortfall.

"The supply shortfall is mainly due to a projected decline in palm oil output in Southeast Asia, while higher palm oil production in Latin America is unlikely to fully offset the decline. Nonetheless, weather developments in October and November will be critical in determining the eventual impact on 2027 output," MPOC said.

Energy markets are also providing additional support to palm oil prices, particularly through stronger biofuel economics.

MPOC said the shutdown of Saudi Arabia's East-West pipeline facilities following an escalation in the conflict had added to supply concerns arising from shipping disruptions in the Strait of Hormuz and Bab al-Mandab Strait.

"As a result, biofuel blending margins have improved further. Gasoil prices were up 147 per cent year-to-date by mid-September, while crude oil prices rose by 73 per cent, well above the 21 per cent increase in CPO prices over the same period."

MPOC said Indonesia's domestic CPO prices were trading around US$600 a tonne below ICE gasoil prices in September, further enhancing palm oil's competitiveness as a feedstock for biofuels.