Malaysian palm oil stocks hit record high, but prices support forecasts of lower production in Indonesia

According to the MPOB (Malaysian Palm Oil Board) report dated October 12, in September, Malaysian palm oil stocks increased by 19.5% compared to August to a record 3.51 million tonnes, which exceeded market expectations. The main reason was the increase in palm oil production by 16.5% to 2.12 million tonnes against the background of a decrease in exports by 12.1% to 1.12 million tonnes. It is worth recalling that the country's oil production has been growing for 4 consecutive months.

However, December palm oil futures on the Bursa Malaysia exchange rose 1% yesterday to 4,638 ringgit/t or $1,136/t, supported by data on an increase in exports in the first 10 days of October by 33-35%, as well as forecasts of a reduction in palm oil production in Indonesia.

In an October report, USDA experts lowered their forecast for palm oil production in Indonesia by 2.2 million tons to 45 million tons (46.7 in 2025/26 MY) due to dry weather in the past few months, which will lead to a reduction in global palm oil production in 2026/27 MY by 2.5 million tons compared to the previous season, while global stocks will reach the lowest level since 2017/18 MY.

It should be noted that on Friday, the industry association GAPKI reported that due to dry weather caused by the El Niño phenomenon, palm oil production in Indonesia in 2027 will decrease by 4% from 53.7 to 51.7 million tons compared to the current year, and exports will decrease by almost 15% from 31.1 to 26.5 million tons due to increased domestic consumption. In addition to the food industry, demand for palm oil will increase from the bioenergy sector, which is associated with the introduction in Indonesia of a mandatory use of a 50:50 blend of diesel and palm oil-based biodiesel.

According to data released by GAPKI, in August, exports of palm oil products from Indonesia increased by 3.3% compared to the same month last year.

While palm oil supply is increasing, prices remain under pressure from inventories and supply, as well as increased supplies of sunflower and rapeseed oil. Only a sharp reduction in production in Indonesia in the second half of the season could significantly affect quotes.