Palm Oil Futures Slide on Inventory Concerns as El Niño Casts Shadow Over 2027 Output
Malaysian palm oil futures fell around 2% on 25 September 2026, hitting their lowest levels since early August, as expectations of rising stocks above 3.1 million tonnes and weak Indian import demand weighed on prices. Analysts warn that El Niño-related yield losses could tighten the global balance in 2027, capping longer-term downside.
Palm oil futures on the Malaysian Derivatives Exchange (MDEX) extended their correction last week, with active contracts posting a week-on-week loss of approximately 4.6% and touching their weakest levels since early August 2026, according to CMB News.
The nearby October 2026 crude palm oil (CPO) contract settled at 4,475 MYR per tonne on 25 September, down 89 MYR or 1.99% on the day, CMB News reported. The benchmark December 2026 contract closed at 4,672 MYR/t, while forward months extended into 2027, with January 2027 at 4,768 MYR/t and March 2027 at 4,941 MYR/t.
The primary near-term pressure stems from supply-side expectations. CMB News said market participants anticipate end-September Malaysian inventories exceeding 3.1 million tonnes, reflecting seasonal production increases while export volumes lag. Weaker crude oil prices have simultaneously reduced the attractiveness of palm-based biodiesel blending in Indonesia and Malaysia, eroding a key source of industrial demand.
Indian buying — a critical driver of global palm oil trade — has remained subdued despite recent tariff reductions. According to CMB News, Indian buyers have not significantly increased purchases even after reductions in import tariffs on palm, soybean, and sunflower oil, with comfortable domestic vegetable oil inventories and competition from discounted sunflower and soybean oil dampening interest.
Speculative positioning has also worked against palm oil. CMB News cited recent CFTC data showing that managed money has expanded long positions in the soy complex, particularly soymeal, while sentiment toward soyoil and palm oil remains more cautious — a rotation CMB News attributed to expectations of robust feed demand and relatively less bullish views on biodiesel and food oil use.
Despite the near-term bearish tone, the medium-term outlook introduces a counterbalancing risk. CMB News reported that analysts expect ongoing El Niño-related dryness to translate into lower fresh fruit bunch (FFB) output with a lag, projecting a roughly 3% production decline in 2027 for Indonesia and Malaysia combined. Indonesian palm oil production could fall to approximately 49 million tonnes in 2027, while Malaysia's output may drop to around 19.5 million tonnes, CMB News said.
Notably, CMB News reported that the Indonesian palm oil association has revised its expected production decline from 5% to 3%, indicating that earlier fears have moderated. Because weather-driven yield impacts are expected to materialise with a significant lag, CMB News said the 2027 risk premium is not yet fully reflected in current prices, with nearby contracts continuing to trade primarily on inventory and demand signals.
CMB News described the broader near-term price risk for nearby contracts as skewed to the downside or sideways, noting that any additional weakness in crude oil would further pressure biodiesel-linked demand. Over the medium term, the source said seasonal production should peak and then ease, and that El Niño concerns may feature more prominently if crop surveys confirm stressed yields.
Prepared with AI assistance and reviewed by the editorial team.
