Malaysia’s palm oil market is entering the second half of 2026 with higher production and inventories, but stronger exports and potential weather-related supply risks could help keep crude palm oil prices supported through year-end.
PALMOILMAGAZINE, KUALA LUMPUR — Malaysian crude palm oil (CPO) prices are expected to remain firm in the second half of 2026 despite rising production and inventories, with concerns over potential crop losses linked to El Niño emerging as a key source of price support.
Public Investment Bank Bhd’s research arm, PublicInvest Research, said the market was increasingly factoring in the possibility of weaker palm yields in both Malaysia and Indonesia as weather conditions develop.
Also Read: Malaysian CPO Price Falls to RM4,711 per Tonne as Rising Stocks Pressure Market
The research house noted that 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-use ratio declined from 13% to 12.5%. This suggests that the rise in stocks has not significantly altered the overall balance of Malaysia’s palm oil market.
According to a PublicInvest Research report cited by PalmOilMagazine on August 16, the research house expects CPO prices to remain supported during the second half of 2026 as the market anticipates potential weakness in Malaysian and Indonesian palm yields due to El Niño developments.
“We expect CPO prices to remain supported in 2H26 amid concerns over weaker palm yields in Malaysia and Indonesia due to the development of El Niño,” the research house said.
Also Read: BMKG Warns El Niño to Keep Indonesia’s Palm Oil Regions Drier Until October 2026
Malaysian Palm Oil Exports Rise 14.5%
On the demand side, export performance provided additional support for Malaysia’s CPO market. Malaysian palm oil exports rose 14.5% month-on-month in July 2026, driven mainly by stronger shipments 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 strongest growth came from the Middle East, where exports surged 173.8% from the previous month.
However, export performance across major destinations remained mixed. Shipments to China fell 51.2%, while exports to the United States declined 14.1%.
The divergent performance across major markets highlights uneven global demand for palm oil. Nevertheless, stronger shipments to several key destinations helped support the absorption of Malaysia’s production.
Also Read: Malaysian CPO Price Falls to RM4,711 per Tonne as Rising Stocks Pressure Market
Malaysia’s CPO Production Climbs 9.4%
On the supply side, Malaysian CPO production increased for the second consecutive month. Output reached around 1.8 million metric tons in July 2026, up 9.4% month-on-month.
Production in Peninsular Malaysia rose 10.6%, while output in East Malaysia increased 7.9% from the previous month.
However, fresh fruit bunch (FFB) yields for the January–July 2026 period showed a slight decline. Average FFB yields stood at 9.27 metric tons per hectare, indicating continued pressure on plantation productivity.
PublicInvest Research identified the weaker yield trend as one of the factors supporting its outlook for CPO prices in the second half of the year, particularly if weather conditions further affect crop yields.
Also Read: Malaysia Palm Oil Stocks Rise 3.32% to 2.63 Million Tonnes in July 2026
Palm Oil Earnings Cycle Shows Signs of Strengthening
PublicInvest Research also sees Malaysia’s palm oil industry entering the early stages of a stronger earnings cycle, supported partly by higher average CPO prices in the second quarter of 2026.
Malaysia’s average CPO price reached RM4,523 per metric ton in Q2 2026, up from RM4,071 per metric ton in the same quarter a year earlier.
Also Read: Malaysia CPO Prices Hit Four-Month High at RM4,724 per Ton
The price increase came despite Malaysian CPO production falling 7.1% year-on-year in the second quarter to approximately 4.7 million metric tons.
With higher selling prices, potential weather-related crop risks from El Niño and stronger exports to several key markets, PublicInvest Research expects Malaysia’s palm oil industry to maintain a relatively positive earnings outlook in the second half of 2026.
Production trends, weather conditions, inventory levels and export performance will remain key factors shaping the direction of Malaysian CPO prices through the end of the year. (P2)
