Palm oil prices fluctuate due to Indonesia’s biofuel policy and global demand

Indonesia’s decision to pause the expansion of its biodiesel program, combined with expected growth in palm oil production in the coming months, is likely to put pressure on prices. However, analysts say strong demand and slowing production growth could limit the downside.

Palm oil output in Southeast Asia, which supplies nearly 90% of the global market, is expected to increase slightly in 2026 due to favorable weather conditions in Indonesia, the top producer, even as production in Malaysia, the second-largest grower, is forecast to decline.

More palm oil is likely to enter the global market as Indonesia has shelved plans to mandate 50% biodiesel blending. Malaysian palm oil futures are expected to trade in a range of 3,800–4,300 ringgit ($968–$1,096) per metric ton through July 2026, barring any major weather disruptions.

Rising demand from India and slower growth in production may support prices. India, the world’s largest edible oil importer, is likely to increase palm oil purchases this year, reducing inventories that had reached multi-month highs in Malaysia. Meanwhile, China’s demand for palm oil is expected to continue declining in 2026 as the country shifts to cheaper alternatives, including canola and soybean oil.

At the same time, Indonesian government raids on palm plantations are expected to reduce output due to lower fertilizer use and insufficient maintenance. Since last year, approximately 4.1 million hectares of plantations have been seized, affecting both major companies and smallholder farmers.

According to the Indonesian Palm Oil Producers Association (GAPKI), Indonesia’s crude palm oil output is expected to grow 2–3% in 2026 after rising 8% to 51.98 million metric tons in 2025. Analysts note that continued government enforcement and control over illegal plantations could limit production growth and help maintain market balance.

Tags: prices, palm oil