April’s better-than-expected plantation output has raised hopes of a strong second quarter, even as a recent decline in exports is seen as temporary.
Analysts said demand for palm oil is likely to improve in the coming months, supported by policy changes in key producing countries. Malaysia is set to increase its biodiesel blend from B10 to B15 from June 1, while Indonesia plans to raise its B40 mandate further towards B50 from July 1. These moves are expected to boost consumption of palm oil.
At the same time, edible oil inventories in India are estimated to be 10 to 20 per cent lower than a year ago, adding to demand pressure, Focus Malaysia reported.
Global supplies of edible oils are expected to remain tight through 2026. There are also concerns that supply conditions could worsen in 2027 if a strong El Niño develops later this year. Supply worries had already emerged before tensions in the Middle East began, and rising energy prices since then have increased interest in biodiesel as an alternative fuel.
Countries such as Indonesia, Malaysia and Thailand are moving ahead with higher biodiesel blending targets. Once fully implemented, these measures could add demand of around three to four million metric tonnes of palm oil annually, roughly 10 per cent higher consumption.
While plantation companies are expected to face rising fertiliser and energy costs from the second half of 2026, the sector is still likely to benefit from higher crude palm oil (CPO) prices. Prices have risen from RM4,019 per metric tonne in January to RM4,568 in April, supported by steady demand growth of 3 to 4 per cent and increasing use in biodiesel.
The possibility of CPO prices remaining firm into 2027 is also rising due to the potential formation of a very strong El Niño. Historically, such weather patterns have had limited impact on oil palm yields, but very strong events can disrupt flowering and affect yields in the following season.
Past trends show that a very strong El Niño could reduce regional output by 2 to 9 per cent in the next year, which may push CPO prices up by another 5 to 10 per cent.
In the oleochemicals segment, prices have increased by 10 to 15 per cent since January 2026, though higher input costs and a weaker global economic outlook may weigh on demand.
Despite these challenges, analysts expect the sector’s returns to remain strong through 2026 and 2027, supported by improved financial positions of plantation companies and lower debt levels among larger players.
