Crude palm oil (CPO) prices are expected to remain supported in the near term as firm crude oil prices, improving Indian demand and rising El Niño-related supply risks offset pressure from high Malaysian inventories and sluggish exports, according to OCBC.
CPO spot prices fell about 4% in September to RM4,433 per tonne as at Sept 29, but remained relatively elevated.
OCBC said Malaysian palm oil production should remain seasonally firm through September and October before easing towards year-end. Production for January to August stood at 12.6 million tonnes, broadly unchanged from the same period last year.
The more immediate headwind is inventories. Malaysian palm oil stocks climbed 7.5% month-on-month and 28.3% year-on-year to 2.82 million tonnes in August, the highest level so far this year, while exports declined 7.5% from July.
Early September indicators also continued to point to weak export momentum, which OCBC said could limit the upside for CPO prices.
Supply concerns are becoming more pronounced in Indonesia, where persistent dry weather and forest fires across major palm-growing areas could disrupt harvesting and transportation.
OCBC said intensifying El Niño conditions also raise the risk of weaker oil palm yields next year. Given the lag between adverse weather and its impact on palm productivity, the more significant production effects are expected to emerge from the second quarter of 2027 onwards.
Indian demand could meanwhile provide some support ahead of the festive season.
India’s palm oil imports stood at about 783,000 tonnes in August, while the country’s reduction in import duties on crude and refined palm oil from late September is expected to encourage additional restocking ahead of Diwali.
However, OCBC noted that similar duty reductions for competing edible oils could limit the degree of switching towards palm oil.
Higher crude oil prices are also improving the economics of palm-based biodiesel. The palm oil-gasoil, or POGO, spread has fallen to around minus US$367 per tonne, compared with an average of about minus US$126 per tonne in August, strengthening the incentive for biodiesel usage.
Overall, OCBC expects CPO prices to remain supported around current levels in the near term. Looking further ahead, stronger biodiesel demand and the delayed production impact from El Niño could result in a tighter palm oil supply-demand balance in 2027.
