BMI has raised its forecast for Malaysia’s crude palm oil (CPO) prices in 2026, citing stronger biodiesel demand, tighter global supply conditions, robust Indian buying and rising risks from the developing El Niño weather phenomenon.
The Fitch Solutions research unit now expects front-month Bursa Malaysia-listed CPO futures to average RM4,453 per tonne in 2026, up from its previous forecast of RM4,300 per tonne issued in October 2025.
The revised forecast represents a 4.1% increase from the 2025 average of RM4,279 per tonne.
BMI expects CPO prices to average RM4,550 per tonne in the third quarter and RM4,582 per tonne in the fourth quarter, following averages of RM4,177 per tonne in the first quarter and RM4,504 per tonne in the second quarter.
As of Aug 17, front-month CPO futures stood at RM4,589 per tonne, representing a 16.1% gain year-to-date, while the year-to-date average was RM4,380 per tonne.
BMI said the upward revision reflected a tightening near-term supply-demand balance and a narrowing global production surplus in the 2026/27 season.
Global surplus set to narrow
Global palm oil production is forecast to reach 81.4 million tonnes in 2026/27, broadly unchanged from the previous season, while consumption is expected to rise 2.7% to 79.9 million tonnes.
As demand grows faster than supply, BMI expects the global production surplus to narrow from 3.6 million tonnes in 2025/26.
Indonesia is expected to play a major role in tightening the market as its expanded biodiesel programme redirects more palm oil towards domestic fuel consumption.
The country brought forward its B50 biodiesel programme in July, raising the mandatory blend rate from B40 to B50, although a three-month transition period allows the market to clear remaining B40 stocks through September.
BMI expects Indonesian palm oil production to rise 1.7% to 47.5 million tonnes in 2026/27. However, domestic consumption is projected to increase 2.6%, absorbing much of the additional output.
The resulting reduction in exportable palm oil is expected to provide structural support for global CPO prices.
Malaysia production remains a concern
For Malaysia, BMI has lowered its 2026/27 palm oil production forecast to 19.5 million tonnes, representing a 3.5% decline year-on-year.
The Malaysian Palm Oil Board’s July data showed domestic production rose 9.4% month-on-month to about 1.8 million tonnes, in line with seasonal trends, but remained 1.1% below July 2025.
Although Malaysian production increased 0.6% year-on-year during the first half of 2026 to 9 million tonnes, BMI noted that production challenges are expected to weigh on the outlook.
Malaysian CPO closing stocks fell to 1.4 million tonnes in July from 1.7 million tonnes in January, supported by strong exports. However, stocks remained 40% above last year’s level, which BMI said should temper the upside in prices.
The research firm also expects Malaysia’s biodiesel mandate to provide only a modest near-term boost to domestic CPO demand.
While the government has indicated ambitions to increase the biodiesel blend to B15, BMI considers a 12% blend rate more realistic for 2026, given the limited evidence of full implementation during the first half of the year.
India demand and Black Sea disruptions add support
Another near-term support for palm oil prices is stronger Indian demand ahead of the festive season.
India’s edible oil imports rose 33.3% month-on-month in July to 1.48 million tonnes, with palm oil accounting for 730,965 tonnes, up 49.8% month-on-month.
BMI expects Indian buying to remain strong through August and September as importers rebuild inventories ahead of the festive season.
Disruptions to sunflower oil supplies from the Black Sea region are also encouraging major importers such as India to turn towards palm oil.
Russian export capacity at Azov and Novorossiysk has been affected by Ukrainian drone strikes, tightening sunflower oil availability and providing additional support to palm oil demand.
El Niño raises supply risks
BMI also highlighted increasing El Niño risks as an important factor supporting palm oil prices into 2027.
The US Climate Prediction Center’s Aug 13 assessment pointed to a strengthening El Niño, with a 75% probability of a very strong event during August-October, with the intensity potentially persisting through December 2026-February 2027.
Given that Indonesia and Malaysia account for a significant share of global palm oil production, prolonged dry conditions could threaten yields and production.
BMI cautioned that a stronger El Niño does not necessarily translate into a proportionately larger production decline. Nevertheless, the potential for drought, heat stress and fires has shifted the risk to the downside for its production forecasts.
Prices expected to remain elevated into 2027
Looking beyond 2026, BMI expects palm oil prices to remain firm through the first quarter of 2027 before gradually easing as El Niño risks subside.
Its 2027 average price forecast stands at RM4,543 per tonne, slightly above the 2026 forecast.
BMI expects prices to average RM4,600 per tonne in the first quarter of 2027, before easing to RM4,550 in the second quarter, RM4,520 in the third quarter and RM4,500 in the fourth quarter.
The medium-term outlook remains supported by growing biodiesel demand, population growth in major Asian and African consuming markets and limited scope for global production growth.
BMI expects Indonesia’s B50 ambitions to increasingly divert palm oil away from export markets towards domestic fuel consumption.
At the same time, ageing plantations, insufficient replanting and limited availability of new agricultural land are expected to constrain production growth in Indonesia and Malaysia.
As a result, BMI expects the global palm oil surplus to continue narrowing over the medium term, potentially shifting the market increasingly towards higher prices beyond 2027.
