Rising Malaysian stockpiles keep palm oil prices in check, but El Niño could change the outlook

Analysts expect elevated palm oil inventories to limit further price gains in the coming months. Malaysia’s palm oil stocks rose to 2.5 mln tons in June, the highest level since February, as production increased faster than exports, easing short-term supply concerns.

According to Public Investment Bank and TA Securities, seasonal production is expected to increase further in the coming months, adding to inventories. Analysts believe stronger export demand will be needed to support higher palm oil prices, as current export growth is lagging behind production.

At the same time, climate risks are increasing. The latest forecasts indicate an 81% probability of a very strong El Niño developing between October and December, with a 97% chance that the event will persist through early spring 2027. However, its impact on palm oil production is expected to be felt mainly next year.

Analysts say potential production losses caused by hotter and drier weather could become a major bullish factor for palm oil prices. Malaysian palm oil producers could benefit the most from such a scenario, while continued growth in biodiesel demand is also providing market support.

September palm oil futures on Bursa Malaysia rose to 4,527 ringgit per ton on July 13. Prices have already gained about 12% since the beginning of the year, supported in part by the expansion of biodiesel blending programs that increase palm oil consumption.

Tags: prices, Malaysia, palm oil, stocks