men.industry.co.id - Crude palm oil (CPO) prices are poised to remain elevated through the rest of 2026 and into early 2027, as tightening supply fundamentals, expanding biodiesel mandates, and the looming threat of El Niño converge to support the global vegetable oils market. For Indonesia and Malaysia, which together account for approximately 85 percent of global palm oil supply, the price outlook carries significant implications for trade balances, farmer welfare, and energy policy.
The Malaysian Palm Oil Council (MPOC) expects CPO prices to remain firm above RM4,600 per tonne in September 2026, while forward contracts for 2027 futures on Bursa Malaysia Derivatives have already crossed the RM5,000 per tonne threshold, reflecting deep market concern over potential supply disruptions.
Price Forecasts Raised Across the Board
Research houses have been revising their palm oil price forecasts upward. BMI Country Risk and Industry Research has raised its 2026 average price forecast for front-month Bursa Malaysia CPO futures to RM4,453 per tonne (approximately US$1,103), up from a previous estimate of RM4,300. The revision reflects a narrowing global production surplus as consumption growth continues to outpace supply.
Kenanga Research maintains a similar outlook, forecasting CPO prices at RM4,400 per tonne for 2026 and RM4,450 per tonne for 2027. Both research houses cite higher biodiesel demand and the risk of a severe El Niño as the primary drivers supporting elevated prices.
BMI expects global palm oil production to reach 81.4 million tonnes in the 2026/27 season, a marginal decline of just 20,000 tonnes from 2025/26. Meanwhile, global consumption is forecast to rise 2.7 percent year-on-year to 79.9 million tonnes, reducing the production surplus from 3.6 million tonnes in 2025/26 to approximately 1.5 million tonnes.
Indonesia's Reference Price and Export Performance
Indonesia's Ministry of Trade has set the CPO reference price (Harga Referensi) for August 2026 at US$996.52 per metric tonne, a slight decline of US$4.38 or 0.44 percent from July 2026's US$1,000.90. The adjustment has led to corresponding changes in export levies and duties.
Despite the monthly dip in reference prices, Indonesia's palm oil export performance remains robust. Data from Statistics Indonesia (BPS) shows that the export value of CPO and its derivatives rose 7.32 percent year-on-year in the first half of 2026, driven by stronger international prices.
In January 2026 alone, Indonesia's CPO exports surged 59.63 percent year-on-year to US$2.29 billion, with shipment volumes jumping 77.07 percent. Together with iron and steel and coal, CPO and its downstream products accounted for approximately 28.30 percent of Indonesia's total non-oil and gas exports during January-June 2026. Among the three major export commodities, palm oil recorded the strongest growth.
B40 Biodiesel: Indonesia's Domestic Demand Engine
Indonesia's B40 biodiesel mandate — requiring a 40 percent palm oil blend in diesel fuel — remains a critical driver of domestic palm oil demand. The government has decided to retain the B40 mandate rather than advancing to B50 in 2026, citing technical and financial limitations.
The biodiesel production quota for 2026 has been set at 15.646 million kiloliters, according to the Indonesian Biofuel Producers Association (APROBI). The three-month transition period to clear remaining B40 biodiesel stocks ends in September 2026, which could further tighten domestic palm oil supply.
The B40 program serves multiple strategic objectives for Indonesia: reducing dependence on imported diesel, supporting domestic palm oil prices by absorbing surplus production, cutting carbon emissions, and strengthening energy security. However, it also means less CPO available for export, contributing to the tightening global supply picture.
El Niño: The Looming Supply Risk
The potential return of El Niño weather patterns represents the most significant upside risk to palm oil prices. El Niño typically brings drier-than-normal conditions to Southeast Asia, reducing oil palm yields and tightening supply.
BMI expects prices to remain strong into the first quarter of 2027 before gradually easing as El Niño risks dissipate. The research house forecasts CPO prices to average RM4,543 per tonne in 2027, slightly higher than its 2026 forecast, supported by the carry-over of strong prices and new structural demand from expanding biodiesel mandates.
Forward contracts trading above RM5,000 per tonne for 2027 delivery suggest that the market is already pricing in a significant probability of supply disruption. If El Niño materializes in full force, prices could spike well above current forecasts.
Geopolitical Headwinds and Downside Risks
Despite the bullish outlook, several downside risks could trigger a correction in vegetable oil prices:
- Black Sea logistics — Any easing of logistical bottlenecks in the Black Sea region could release pent-up sunflower oil supplies into export markets, increasing competition for palm oil
- New-crop sunflower oil — The arrival of new-crop sunflower oil supplies could put downward pressure on palm oil prices
- Energy prices — If geopolitical tensions improve and energy prices decline, the economic viability of biodiesel blending could weaken, reducing palm oil demand
- Indonesia's export levies — Changes in Indonesia's export tax structure could affect the competitiveness of Indonesian palm oil in global markets
MPOC has cautioned that these factors could trigger a correction, even as the fundamental supply-demand picture remains supportive.
Implications for Indonesia and Malaysia
For Indonesia, elevated palm oil prices support the country's trade balance and foreign exchange earnings. The agriculture sector, which employs millions of smallholder farmers, benefits directly from higher commodity prices. However, the B40 mandate creates a tension between domestic energy security and export revenue — every litre of palm oil used for biodiesel is a litre not available for export.
For Malaysia, higher CPO prices boost plantation sector earnings and government revenue through export duties. Malaysian palm oil stocks rose 3.32 percent to 2.63 million tonnes in July 2026, but the stock build-up has not been sufficient to dampen prices given the strong demand outlook.
Both countries face the challenge of balancing short-term revenue maximization with long-term sustainability concerns, including deforestation risks, smallholder productivity gaps, and the need for downstream industrialization to create greater added value.
Key Takeaways
- CPO prices forecast to average RM4,400-4,500 per tonne in 2026, with potential to exceed RM5,000 if El Niño materializes
- Indonesia's palm oil exports rose 7.32% in H1 2026, accounting for 28.3% of non-oil exports
- B40 biodiesel mandate absorbs domestic supply, tightening the global market
- Global production surplus narrows from 3.6 million tonnes to 1.5 million tonnes
- Geopolitical risks (Black Sea, Iran) and El Niño are the key variables to watch
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