Palm oil under pressure and its adjustment

Since January 2026, domestic and international palm oil futures prices have shown volatility, driven primarily by factors such as pressure on Malaysian palm oil inventories, Indonesian policy changes, and macroeconomic sentiment. On January 15, the palm oil futures market witnessed a fierce battle between bulls and bears, with bullish positions taking profits and closing out positions, causing prices to erase nearly a week’s gains.

Overall, a report released last week by the Malaysian Palm Oil Board (MPOB) showed palm oil inventories exceeding market expectations, indicating ongoing pressure from inventory accumulation. On the demand side, Malaysian palm oil exports showed a slight improvement, with shipments in early January up 31% compared to the previous month. Furthermore, inventory buildup in India during Ramadan is expected to support demand. On the policy side, Indonesia’s export regulations remain uncertain. Furthermore, low oil prices are constraining industrial demand, while improving global macroeconomic sentiment is providing some support for prices. Near-term palm oil markets are facing a combination of bullish and bearish factors, with significant upward pressure.

The supply-demand balance in Malaysia is improving

The MPOB report indicates that palm oil supply remained strong in December 2025, while demand was weak, with inventories reaching record highs. However, high-frequency monitoring data for January 2026 shows a deepening decline in production and a slight improvement in exports, suggesting that inventory pressure may gradually ease.

On January 12, the MPOB released palm oil supply and demand data: Malaysian palm oil production in December 2025 reached 1.8298 million tonnes, down 5.46% from the previous month but above market expectations of 1.76 million tonnes. Despite the seasonal decline in production, output was the second-highest for this period since 2018, and the supply contraction failed to meet expectations. Exports reached 1.317 million tonnes, up 8.52% from the previous month and exceeding market forecasts of 1.23 million tonnes, reaching 1.25 million tonnes. Inventories rose 7.58% month-on-month to 3.051 million tonnes, reaching their highest level since February 2019, indicating ongoing pressure on inventory accumulation.

Meanwhile, high-frequency data for January 2026 indicate a slight improvement in the supply and demand dynamics for palm oil in Malaysia. The larger-than-expected production contraction is primarily due to the onset of natural dormancy for oil palms and a shortage of foreign labor, which is limiting harvest efficiency. On the export side, palm oil supplies from Malaysia have improved significantly, as stockpiling in India during Ramadan and pre-Christmas demand in China coincided with a reduction in export duties in Indonesia, leading to a drop in international palm oil prices. Regarding stocks, despite high stocks in December 2025, the combined impact of lower production and improved exports in January will significantly slow inventory growth. Malaysian palm oil stocks are expected to reach a turning point in the first quarter of 2026.

Indonesian policy remains a key factor

According to the Indonesian Palm Oil Producers Association (GAPKI), palm oil production in Indonesia has recovered since the fourth quarter of 2025, while consumption has stabilized and is growing, easing pressure on stocks. The Indonesian government’s recent policy decisions have become a critical factor: on the one hand, Indonesia plans to confiscate an additional 4-5 million hectares of illegal oil palm plantations in 2026, representing approximately 25% of the current total area. This move could curb palm oil production growth in the medium and long term. On the other hand, to support the biodiesel production program (consumption of which will reach 14.2 million liters in 2025, a 7.6% increase from the previous year, following the implementation of the B40 plan), the Indonesian government intends to increase the export tax on crude palm oil. The head of Indonesia’s Plantation Fund Management Agency announced that the country will increase the export tax on crude palm oil from the current 10% to 12.5%, effective March 1, 2026.

Tariff increases will directly increase the cost of palm oil production in Indonesia, reduce its price competitiveness, and potentially shift demand toward Malaysian palm oil. Reduced supply, coupled with rising domestic consumption, as well as the adjustment of Indonesia’s export duties, will support international palm oil prices.

However, Indonesia’s Deputy Energy Minister announced this week that the country has abandoned plans to increase the mandatory share of biodiesel in the fuel mix to 50% this year, maintaining the current B40 program. The delay in the B50 plan has somewhat slowed the pace of further growth in global palm oil prices.

China’s import margins remain low

Regarding import margins, data show that since the beginning of this year, the near-term profit margin on palm oil shipments relative to futures prices is -121 yuan per tonne. While this represents a slight recovery from previous levels, it remains in negative territory. The domestic palm oil market is currently experiencing a weakening supply-demand balance, and commercial inventories remain high. Low import margins are dampening buying enthusiasm, although December 2025 shipments are already showing signs of declining.

Commercial Inventories: As of January 9, 2026, commercial palm oil inventories in key regions totaled 736,000 metric tons, up 2,200 metric tons (0.30%) from the previous year. Compared to the same period last year (501,200 metric tons), inventories increased by 234,800 metric tons (46.85%). The domestic palm oil market remains oversupplied, but a slight reduction in imports could gradually ease inventory pressure. Traders should monitor the impact of profit recovery and changes in demand on the market.

Overall, following the MPOB report’s publication, bearish factors have largely been priced in, leading to a recovery in palm oil prices. Future trading depends on a slight improvement in Malaysian palm oil supply and demand dynamics in January, Indonesia’s biodiesel program, and changes to its export duty policy. Furthermore, expectations remain that Indonesia will increase its palm oil export duties, and its plantation confiscation plan merits attention. Weak oil prices continue to weigh on industrial demand. Palm oil futures have recently shown limited upward momentum due to bearish factors, including rising inventories in producing countries, the phased suspension of Indonesia’s B50 program, and persistently high domestic palm oil inventories. Market focus should remain on supply levels in producing countries.

Tags: prices, palm oil