Palm oil prices buoyed by tight supply outlook

The Malaysian Palm Oil Council (MPOC) expects crude palm oil (CPO) prices to remain firm above 4,600 ringgit per tonne in September. The outlook is based on tightening supply fundamentals alongside geopolitical disruptions that are affecting trade flows. These factors have helped push benchmark prices higher and underpin expectations that the market will stay supported in the near term.

Beyond the immediate month, forward prices also signal a firm market. As of mid‑August, forward contracts for 2027 on Bursa Malaysia Derivatives were trading above 5,000 ringgit per tonne. This pricing reflects market concerns about future supply, including the potential impact of El Niño on palm oil production.

Industry and market reports identify rising biofuel use as a major source of support for palm oil prices. Indonesia began implementing a B50 biodiesel mandate in July, requiring a 50% palm‑based biodiesel blend. This policy increases domestic consumption of palm oil and reduces export availability to the global market.

In addition, changes to the U.S. Renewable Fuel Standard for 2026–27 are set to sharply raise biomass‑based diesel requirements. Estimates indicate that biodiesel and renewable diesel use will need to rise more than 60% from 2025 levels to meet those requirements. This is expected to boost demand for feedstocks such as palm oil, tightening the balance between supply and demand for vegetable oils worldwide.

On the supply side, MPOC highlights normal seasonal patterns that typically weigh on output later in the year. Palm oil production usually enters a downtrend in the fourth quarter, while oil extraction rates tend to ease from earlier highs. This seasonal slowdown reduces available volumes during a period when demand remains steady to firm.

MPOC expects these trends to result in a year‑on‑year decline in palm oil production in the fourth quarter of 2026. A fall in output, combined with robust biofuel‑driven demand, is projected to tighten supplies toward the end of the year. The combination of seasonal weakness, weather concerns and policy‑driven demand contributes to a constructive price backdrop for the sector.

Expectations embedded in 2027 forward contracts above 5,000 ringgit per tonne also reflect worries about El Niño. Concerns center on the potential for adverse weather to disrupt yields and further constrain supplies. While actual impacts will depend on weather developments, the risk is already being priced into longer‑dated contracts.

Taken together, higher mandated biofuel use, anticipated seasonal production declines and weather‑related risks have tightened the outlook for palm oil supply. These elements help explain why both near‑term and longer‑dated prices are holding at elevated levels, and why the market is oriented toward a firm pricing environment into 2026 and 2027.