Malaysia’s palm oil sector will remain stable thanks to the removal of US duties and the deferment of EUDR

Palm oil sector to remain stable in 2025 after relief from crippling US tariffs

Malaysia’s palm oil sector breathed a sigh of relief after being exempted from a 19% import tariff imposed by the United States, maintaining solid momentum this year despite weak external demand and high inventories.

Crude palm oil (CPO) was sold at RM4,089.50 per tonne in November 2025, up from RM5,011.50 in November 2024, but prices are projected to rise to around RM4,500 early next year. As of December 10 this year, the CPO price was RM4,000 per tonne.

Exports have remained stable this year. Production totaled 22.55 million tonnes in the first 11 months of 2025, valued at MYR 103.01 billion, compared to 26.66 million tonnes, valued at MYR 109.39 billion, for the full year 2024.

Palm oil, the country’s largest export commodity, remains the mainstay of the industry, with farm-based fresh fruit bunch (FFB) yields increasing to 14.45 tonnes per hectare in January-October 2025, compared to 13.96 tonnes per hectare in the same period last year.

In the reporting year, production gains were offset by lower external demand, rising inventories, and increased sustainability pressures in key markets, particularly China, as buyers sought cheaper alternatives such as soybean oil.

Weaker demand contributed to domestic inventories rising to more than 2.7 million tonnes, the highest level in six years.

Higher prices caused palm oil supplies to major markets, particularly China, to plummet by nearly 30% in the first 10 months of this year, as buyers turned to comparatively cheaper alternatives such as soybean oil.

The imbalance between high production volumes and slowing overseas purchases continued to weigh on consumer prices, limiting upside potential despite favorable fundamentals in the first half of the year.

Malaysia’s commodity sector faced a turbulent 2025, as US tariff announcements added to ongoing uncertainty, beginning with a 24% tariff announced on April 9 and culminating in reports of a 25% rate from August 1.

A turning point came on October 26 with the signing of the Reciprocal Trade Agreement (ART) during the 47th ASEAN Summit in Kuala Lumpur.

The agreement exempted 1,711 tariff lines, including key exports such as palm oil, from the 19% tariff, covering approximately US$5.2 billion (RMB22 billion) in exports and providing much-needed relief after months of instability.

EUDR deferral, MSPO recognition – further relief for Malaysia

Beyond trade, the commodities sector gained greater market access and improved its global standing in 2025 following key changes to the EU Deforestation Regulation (EUDR) and the recognition of the Malaysian Sustainable Palm Oil Standard (MSPO).

On November 26, the European Parliament approved a one-year deferment for the EUDR. This gives large operators until December 30, 2026, and small businesses until June 30, 2027, to comply, allowing more time for a smoother transition and updating the EU’s digital due diligence system.

The EU’s official recognition of the MSPO on September 10 as a credible and traceable sustainability certification further strengthened Malaysia’s position.

This approval reduces compliance barriers for Malaysian exporters, facilitates smoother trade flows, and cements the country’s leadership in sustainable palm oil production.

Budget Increase and Outlook for 2026

Budget 2026 brought good news for smallholder farmers, as the government allocated funds to modernize agribusiness and support smallholder farmers.

Almost MYR 2.4 billion was announced to protect over 720,000 settlers, smallholders, and their families through the Federal Land Development Authority (FELDA), the Rubber Industry Smallholders Development Authority (RISDA), and the Federal Land Consolidation and Rehabilitation Authority (FELCRA).

Approximately MYR 20 million will be allocated to support start-ups in the production of mechanization and automation equipment, in collaboration with the Malaysian Palm Oil Board and major palm oil companies, to reduce reliance on foreign labor and encourage local innovation.

Looking ahead, the palm oil sector is expected to continue to demonstrate strong potential, albeit in a highly competitive environment, as key industries face export recovery and bullish momentum.

A recovery in soybean oil prices will narrow the significant price gap between these two oils, as a recovery in soybean oil prices will strengthen the sector.

The Palm Oil Council of Malaysia stated that palm oil prices could rise to MYR 4,500 per tonne in 2026, driven by robust import demand ahead of the Lunar New Year and Ramadan, while policy uncertainty in Indonesia continues to support palm oil prices.

Tags: Malaysia, palm oil