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Market analysts anticipate that elevated palm oil inventories will likely constrain further price increases in the coming months. Malaysia's palm oil stocks surged to 2.5 million tons in June, marking their highest level since February. This rise is attributed to production outpacing exports, thereby easing short-term supply worries.
According to Public Investment Bank and TA Securities, seasonal production is projected to further increase in the months ahead, contributing to the existing inventory levels. Analysts believe that robust export demand will be crucial to underpin higher palm oil prices, as current export growth is lagging behind production rates.
Concurrently, climate risks are escalating. The latest forecasts indicate an 81% probability of a very strong El Niño developing between October and December, with a 97% chance that this event will persist through early spring 2027. However, its significant impact on palm oil production is primarily expected to manifest next year.
Analysts suggest that potential production losses resulting from the hotter and drier weather associated with El Niño could emerge as a major bullish factor for palm oil prices. Malaysian palm oil producers stand to benefit most from such a scenario, while the sustained growth in biodiesel demand also provides ongoing market support.
September palm oil futures on Bursa Malaysia climbed to 4,527 ringgit per ton on July 13. Prices have already gained approximately 12% since the start of the year, partly bolstered by the expansion of biodiesel blending programs, which drive increased palm oil consumption.
Source: UkrAgroConsult