Palm oil prices could reach RM4.500 on three factors, namely higher inventories, Indonesia’s B50 rollout, and the impending weather phenomena from El Niño.
According to CIMB Research, inventories rose to 2.54 million tonnes in June 2026 as stronger production and higher imports outpaced export demand and domestic consumption.
Citing the latest industry data, the research house said palm oil stocks increased 4.8% month-on-month and were 25.2% higher than a year ago. The figure was broadly in line with CIMB’s forecast of 2.57 million tonnes, but exceeded market expectations of between 2.48 million and 2.50 million tonnes.
Crude palm oil (CPO) production recovered from May’s weaker output, rising 8.1% month-on-month to 1.64 million tonnes, although production remained 3.2% lower compared with June last year.
Exports also improved during the month, climbing 6.2% from May to 1.20 million tonnes. However, shipments were still 4.5% lower year-on-year, making it the weakest June export performance since 2023.
CIMB attributed the softer export demand largely to Malaysian palm oil continuing to trade at a premium over competing edible oils, reducing its price competitiveness in international markets.
Meanwhile, imports surged 135% month-on-month to 103,000 tonnes, while domestic consumption increased 37.3% to 422,000 tonnes.
Despite stronger exports and higher local demand, the combined increase in production and imports exceeded total offtake, resulting in a further build-up in inventories
Stocks expected to rise further in July
Looking ahead, CIMB expects Malaysia’s palm oil inventories to increase further to 2.68 million tonnes in July, representing another 5.4% month-on-month gain.
The research house forecasts palm oil production to rise by about 5% during the month, while exports are also expected to increase by a similar pace.
With inventories remaining elevated, CIMB expects CPO prices to trade within the RM4,300 to RM4,600 per tonne range in the near term as higher stock levels ease immediate supply concerns.
El Niño and Indonesia’s B50 policy to support prices
Despite the near-term increase in inventories, CIMB believes downside risks to palm oil prices remain limited due to tightening medium-term supply and demand fundamentals.
One key factor is the growing risk of adverse weather linked to El Niño. According to the latest update from the US National Oceanic and Atmospheric Administration (NOAA) released on July 9, there is an 81% probability of a strong or very strong El Niño developing between October and December 2026.
Should dry weather materialise across Southeast Asia’s major palm oil-producing regions, yields and production could be affected from late 2026 into 2027.
Another supportive factor is Indonesia’s nationwide B50 biodiesel mandate, which officially commenced on July 9.
CIMB estimates the programme will consume between 16.7 million and 18.0 million kilolitres of palm-based biodiesel annually, compared with 7.4 million kilolitres used during the first half of 2026 and 15.62 million kilolitres throughout 2025.
The mandate currently covers 3,547 fuel stations, representing around 55% of Indonesia’s retail fuel network, with biodiesel demand expected to rise further as implementation expands nationwide.
The research house also noted that lower fertiliser application rates at plantations and weaker-than-expected production from Indonesia’s state-owned plantation company Agrinas could provide additional support to global palm oil prices.
Plantation sector remains favoured
CIMB maintained its average CPO price forecasts at RM4,400 per tonne for 2026 and RM4,500 per tonne for 2027, while reiterating its “Overweight” recommendation on the Malaysian plantation sector.
Its preferred plantation stocks remain IOI Corporation Bhd, Kuala Lumpur Kepong Bhd (KLK) and Hap Seng Plantations Holdings Bhd (HSP), which it expects to benefit from resilient palm oil prices and improving medium-term industry fundamentals.
