Malaysia’s palm oil inventories reached a five-month high in July, but tighter supply risks from El Niño and Indonesia’s B50 biodiesel mandate continue to support the CPO market.
PALMOILMAGAZINE, KUALA LUMPUR — Malaysia’s palm oil inventories climbed to a five-month high in July 2026, but the increase has yet to put significant pressure on crude palm oil (CPO) prices, which remain resilient amid growing concerns over tighter supplies from 2027 onward.
The market is increasingly focusing on medium-term supply risks, including strengthening El Niño conditions, Indonesia’s implementation of the B50 biodiesel mandate, and potential disruptions to competing vegetable oil supplies from the Black Sea region.
Also Read: Indonesia’s Palm Oil Consumption Hits 12.99 Million Tons, Boosting Sustainable Market
Since the beginning of the year, benchmark CPO prices have risen by more than 15%. Malaysia’s average CPO price in July 2026 stood at RM4,493 per tonne, up 9.3% from the same month a year earlier. The average price for the first seven months of 2026 reached RM4,388 per tonne.
The prospect of higher CPO prices is also gaining support from industry players. Malaysian plantation group SD Guthrie expects CPO prices to trade between RM4,600 and RM5,000 per tonne during the remainder of 2026. If the impact of El Niño becomes more pronounced, prices could potentially reach RM5,200 per tonne in the first quarter of 2027.
Citing The Edge Market on Saturday (Aug. 29, 2026), Ivy Ng Lee Fang, Head of Malaysia Research and Regional Plantation Analyst at CIMB Securities, said market attention was shifting from simply anticipating the effects of El Niño to monitoring actual signs of changing weather conditions.
She said market participants were increasingly expecting CPO prices to move higher, particularly if production begins to come under pressure heading into 2027.
Also Read: Super El Niño Threatens Malaysia Palm Oil Output in 2027, MPOC Sees Monsoon as Cushion
El Niño Emerges as Key Market Concern
Concerns over El Niño have become one of the main factors supporting palm oil market sentiment. Prolonged dry conditions are expected to pose a greater production risk to Indonesia’s oil palm sector than to Malaysia.
Hotspot activity in Indonesia also increased significantly in August 2026, particularly in Kalimantan. Data from the ASEAN Specialised Meteorological Centre showed that the number of hotspots rose 159% month-on-month to 3,462.
Although the figure remains well below levels recorded during severe El Niño events such as those in 2015 and 2019, the sharp increase in hotspots has been viewed as an early indication of worsening dry conditions in parts of Indonesia.
Also Read: Malaysia Palm Oil Futures Rebound, but Weekly Losses Put Three-Week Rally at Risk
CGS International also highlighted forest fires reported in East Java in early August, which affected around 550 hectares. The incidents were seen as another indication of increasing dryness in some regions.
If dry weather persists for an extended period, it could not only affect oil palm yields but also increase the risk of haze, potentially disrupting harvesting activities in Malaysia.
The 2015/2016 El Niño episode remains an important reference point for the market. During that period, CPO prices rose by around 21.5%, while Malaysia’s CPO production fell from 19.96 million tonnes in 2015 to 17.32 million tonnes in 2016.
CIMB has raised its average CPO price forecasts for 2026 and 2027 by RM50 per tonne to RM4,450 and RM4,550 per tonne, respectively. The revisions take into account geopolitical risks, strengthening El Niño conditions, and higher biodiesel demand in Indonesia.
Also Read: BMKG Warns of Higher Forest Fire Risk in September 2026, Jambi Among Key Hotspots
Malaysia’s Palm Oil Stocks Rise 3.3%
Meanwhile, the latest monthly report from the Malaysian Palm Oil Board (MPOB) showed that Malaysia’s palm oil inventories increased 3.3% month-on-month to 2.63 million tonnes in July 2026.
The stock level was the highest in five months and represented a 24% increase from a year earlier.
The rise in inventories came as Malaysian palm oil production increased 9.4% from June to 1.79 million tonnes. Exports also rose 14.5% to 1.39 million tonnes.
Despite higher inventories, the increase has not been sufficient to trigger a significant decline in CPO prices. Global demand remains relatively strong, while palm oil has become increasingly competitive against other vegetable oils.
India, the world’s largest vegetable oil importer, sharply increased its palm oil purchases in July. The country’s palm oil imports surged 50% month-on-month to around 733,000 tonnes, the highest level in five months.
The increase came as Indian refiners began building inventories ahead of the country’s festival season, which runs from August through November.
Also Read: Malaysian Palm Oil Futures Hit 20-Month High as B50 Biodiesel Boosts CPO Demand
Indonesia’s B50 Mandate May Tighten Export Supplies
Another major factor being closely watched by the market is Indonesia’s implementation of the B50 biodiesel mandate, which took effect on July 1, 2026. The policy raises the palm-based biodiesel blend in diesel fuel to 50%, from 40% previously.
The B50 program is expected to increase Indonesia’s domestic palm oil consumption and reduce the volume available for export.
According to projections cited in the report, nationwide implementation of B50 could absorb around 16.7 million to 18 million kilolitres of palm-based biodiesel annually.
Also Read: MPOC: Indonesia’s B50 Mandate to Keep CPO Prices Above RM4,400/Ton Despite Weak Global Demand
However, Malaysia’s relatively high palm oil inventories and CPO’s existing premium over competing vegetable oils could limit the upside in the short term.
The US Department of Agriculture (USDA) has also lowered its forecast for Indonesia’s palm oil production in the 2026/27 season to 47.2 million tonnes, reflecting growing concerns over dry weather conditions.
Harvest Disruptions and Black Sea Conflict Add Support
The market is also monitoring harvesting disruptions in parts of Indonesia linked to higher diesel prices and fuel shortages. The situation has reportedly prompted some smallholders in Kalimantan and Sumatra to reduce harvesting and fruit collection activities.
While the impact is currently considered localized, the disruptions remain a factor being monitored by market participants.
Geopolitical tensions in the Black Sea region are also providing additional support for vegetable oil prices. Russia and Ukraine are major global suppliers of sunflower oil, meaning disruptions to ports, infrastructure, and export routes could reduce global sunflower oil supplies.
Lower sunflower oil exports could encourage importing countries to switch to palm oil and soybean oil as alternatives, particularly as consumption demand rises during India’s festival season.
With these factors in play, the outlook for CPO prices heading into 2027 remains relatively firm. Although Malaysian palm oil inventories are expected to remain elevated during the peak production period, the market is increasingly shifting its focus toward potential supply reductions caused by El Niño and stronger domestic palm oil demand in Indonesia under the B50 program.
Several research institutions continue to maintain a positive outlook for the plantation sector, particularly upstream producers with high earnings sensitivity to CPO price increases. (P2)
