El Niño could cut palm oil production in 2027 and support prices

Palm oil production in Indonesia and Malaysia could decline by around 3% in 2027 due to prolonged dry weather caused by a strong El Niño. Analysts expect the impact on plantation yields to emerge with a lag, increasing risks to global supply.

Indonesia’s output could fall to 49 mln tons, while Malaysia is expected to produce around 19.5 mln tons. Aging plantations and Indonesia’s expanding biodiesel mandate are adding further pressure to the supply-demand balance by increasing domestic palm oil consumption.

Against this backdrop, some analysts expect palm oil prices to approach 5,000 ringgit/t in 2027. The biggest risks are concentrated in Kalimantan, where heat, drought and wildfire haze are already disrupting fertilizer application, harvesting and transportation.

However, the impact of El Niño on production may be less severe than previously expected. The Indonesian Palm Oil Association now forecasts a 3% decline in 2027 output, compared with an earlier estimate of 5%.

In the short term, the market remains well supplied. Malaysian palm oil inventories are already high and could exceed 3 mln tons by year-end, limiting price gains for now despite expectations of tighter supply in 2027.

Tags: Indonesia, Malaysia, palm oil, Эль-Ниньо