Palm oil prices seen higher in short term amid policy uncertainties in Indonesia

Palm oil prices are expected to increase in the coming months on uncertainties stemming from land seizure policies and a biodiesel plan by top producer Indonesia, leading industry analysts said on Friday.

Indonesia’s President Prabowo Subianto has launched a crackdown on the palm oil industry and has brought around five million hectares (12.3 million acres) of plantation under scrutiny, around 3.7 million hectares of which have been seized by authorities.

The seizures are expected to disrupt productivity, though analysts differ on how severe the impact will be on output.

The Malaysian palm oil benchmark contract may reach RM5,000 (US$1,183.71) per metric tonne over the course of the next six months, Thomas Mielke, executive director of Hamburg-based forecaster Oil World, told an industry conference in Indonesia’s Bali.

Dorab Mistry, a director of Indian consumer goods firm Godrej International, told the same conference that Malaysian futures could reach RM5,500 a tonne in January to March if Indonesia continues to seize plantations and talks about implementing B50.

The benchmark closed at RM4,125 on Friday.

Indonesia’s land seizure policy will affect investment into fertilisation and cultivation of the land, the analysts said.

“That is why production will start coming down from the second, third month onwards. And this is something that we have to bear in mind,” Mistry said, but still expects Indonesia’s production to be slightly better in 2025/26 season.

Mielke expects production will start to be affected from mid-2026 onwards.

The pressure from Indonesia’s move came on top of declining yields from aging trees and slow replanting, he said, expecting Indonesia’s palm oil output to decline in 2026 to 49 million tonnes from 49.4 million tons this year.

He also expected the decline to continue into 2027.

Indonesia Palm Oil Association (Gapki), however, forecast a 3% to 4% production increase in 2026 due to favourable weather and some newly harvested trees, official Fadhil Hasan said, noting the concerns over seizures.

Indonesia’s plan to increase the mandatory blend of biodiesel to 50% in the second half next year is also a major factor that would affect prices due to lower portion available to export.

The plan may require an additional 2.2 million tonnes of palm oil to produce biodiesel, Mielke said.

Gapki is considering a few implementation scenarios of the biodiesel mandate and their impact on palm oil consumption and levies collection to fund the programme.

“Regardless of which policy the government will choose, I think export levy will be adjusted, will be increased,” Fadhil said, due to the widening price gap between the palm oil feedstock and diesel fuel.

Indonesia collects levies on palm oil exports to subsidise its biodiesel programme.

Higher bio-content blending may require up to 7.5% increase in levy, Glenauk Economics analyst Julian McGill said.