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Malaysia's record palm oil inventories are expected to start drawing down in the first quarter of 2027 as the sector moves past its seasonal production peak. Analysts suggest that the combination of potential El Niño-induced dry weather and robust biofuel consumption will likely tighten global market supplies significantly in the coming months.
CGS International predicts that while inventories may remain elevated through the end of 2026, keeping crude palm oil (CPO) prices under pressure in the near term, a fundamental shift is expected from 1Q2027. At the time of reporting, CPO futures for February 2027 delivery were trading at RM4,379 per tonne on Bursa Malaysia Derivatives, reflecting the current market sentiment.
According to the Malaysian Palm Oil Board (MPOB), October 2026 saw inventories reach a record 3.62 million tonnes, marking a 3.2% month-on-month increase. This buildup was driven by high opening stocks and strong seasonal output which outweighed export growth. CPO production hit 2.15 million tonnes in October, supported by improved labor availability and favorable weather, while exports surged 55.7% to 1.71 million tonnes, primarily fueled by demand from India.
The inventory surge has raised operational concerns among independent millers, who may struggle to sell CPO as refineries reportedly halt deliveries due to saturated storage levels. Looking ahead, CGS noted that Malaysia’s export momentum might face headwinds as Indonesia's 20% reduction in CPO export duties and levies, effective from November 2026, could shift international demand toward Indonesian products.
Hong Leong Investment Bank (HLIB) expects inventories to trend lower beyond 1Q2027 as the lagged effects of El Niño begin to impact fruit yields. The research house maintained its average CPO price assumptions of RM4,450 per tonne for 2026 and RM4,500 per tonne for 2027. This outlook is supported by an expected tightening in the supply-demand balance as mandatory Indonesian biodiesel blending coincides with production losses linked to weather patterns.
Source: The Edge Malaysia