Lang
KUALA LUMPUR – BMI, a Fitch Solutions company, has increased its average price forecast for front-month crude palm oil (CPO) futures traded on Bursa Malaysia for 2026 to RM4,453 per tonne. This marks an upward adjustment from its previous projection of RM4,300 per tonne, which had been maintained since October 2025.
According to BMI’s latest Palm Oil Price Forecast report, the revised figure represents a 4.1 per cent year-on-year increase compared to the 2025 average of RM4,279 per tonne. Looking at quarterly trends, BMI anticipates CPO prices to average RM4,550 per tonne in the third quarter and RM4,582 per tonne in the fourth quarter of 2026, building on averages of RM4,177 per tonne in the first quarter and RM4,504 per tonne in the second quarter.
As of the market close on August 17, front-month palm oil futures on Bursa Malaysia settled at RM4,589 per tonne. This closing price signifies a year-to-date gain of 16.1 per cent, with the year-to-date average standing at RM4,380 per tonne, as noted by BMI.
The upward revision by BMI is primarily attributed to a tightening near-term market balance and a diminishing production surplus expected over the 2026/2027 period. This scenario is unfolding against a backdrop of broadly flat global output, significantly hampered by a projected 3.5 per cent decline in Malaysian production. Simultaneously, global consumption is forecast to grow by 2.7 per cent, largely driven by Indonesia’s accelerating biodiesel program, which is set to divert more palm oil from export markets to its domestic fuel supply.
BMI has consequently lowered its palm oil production forecast for Malaysia, predicting a 3.5 per cent year-on-year decrease to 19.5 million tonnes during the 2026/2027 season. Supporting this outlook, data from the Malaysian Palm Oil Board indicated that domestic output in July 2026 reached 1.8 million tonnes, a 9.4 per cent month-on-month increase consistent with seasonal patterns. However, this figure was 1.1 per cent below July 2025 levels, reinforcing BMI’s recent downward revision.
Despite these production challenges, Malaysia’s overall supply position benefits from elevated stockpiles and robust first-half production, with January-June output reaching nine million tonnes, a 0.6 per cent year-on-year increase. Domestic CPO closing stocks, while having drawn down over the year from 1.7 million tonnes in January to 1.4 million tonnes in July due to strong exports, remain 40 per cent higher than the previous year. BMI suggests that while ongoing production difficulties in Malaysia will bolster global prices, the significant stock levels will temper any potential upside.
Regarding Malaysia’s initiative to increase its national biodiesel blend rate to 15 per cent (B15), BMI projects a 'relatively modest' impact on domestic CPO demand. Given that half of 2026 has passed with limited evidence of full B15 implementation, BMI considers a 12 per cent blend rate to be a more realistic assumption for the year. The firm estimates that transitioning from the current B10 level to a full B15 blend would annually boost biodiesel-related CPO demand by approximately 200,000 to 270,000 tonnes. This amount, however, represents only a fraction of the forecasted domestic consumption of 4.3 million tonnes for 2026/2027.
BMI concludes that the biodiesel mandate is best viewed as a 'modest, gradual tailwind' for domestic consumption rather than a transformative 'step-change' capable of significantly altering its price outlook. Source: KLSE Screener