Malaysia’s palm oil inventories reached a record 3.62 million tonnes in October 2026, putting pressure on the near-term crude palm oil (CPO) market. However, analysts expect seasonal production declines, potential El Niño-related crop losses and stronger Indonesian biodiesel demand to support prices heading into 2027.
According to the Malaysian Palm Oil Board (MPOB), total palm oil stocks increased by 3.15% month-on-month to 3.62 million tonnes in October, extending the inventory build-up to seven consecutive months. Crude palm oil stocks accounted for approximately 2.32 million tonnes of the total.
The increase came despite a strong recovery in exports, as higher production and opening inventories outweighed the additional shipments.
Public Investment Bank Bhd (PublicInvest) and Hong Leong Investment Bank Bhd (HLIB) maintained their Overweight ratings on Malaysia’s plantation sector, citing the prospect of a tighter supply-demand balance and sustained CPO prices over the coming year.
October production and exports increase
Malaysia produced approximately 2.15 million tonnes of crude palm oil in October, up 1.74% from September, according to MPOB data. Production during the first ten months of 2026 totalled approximately 16.90 million tonnes, representing a 2.3% increase year-on-year.
Palm oil exports rebounded by 55.75% month-on-month to approximately 1.71 million tonnes in October, their first monthly increase since July. Higher shipments to Asia Oceania, the European Union and India supported the recovery.
However, early-November export indicators suggested that the momentum could moderate. Intertek Services reported a 1.9% month-on-month decline in Malaysian palm oil shipments during the first ten days of November.
HLIB expects inventories to remain elevated in the near term, as seasonally weaker exports could offset the expected slowdown in production from November. The research house also said a possible palm oil export tax waiver could accelerate inventory reductions beyond its current expectations.
PublicInvest expects stocks to begin easing as oil palm trees enter their seasonal low-production period.
Indonesian biodiesel demand could support CPO prices
Demand from Indonesia’s biodiesel sector is among the factors expected to influence the palm oil market in 2027.
Higher biodiesel consumption in Indonesia could increase domestic demand for palm oil, tightening the volume available for other uses and exports. This could provide additional support to CPO prices if production also weakens.
PublicInvest and HLIB expect seasonal production declines and potential El Niño-related weather impacts to tighten supplies across key palm oil-producing regions. The combination of stronger Indonesian biodiesel demand and possible production losses is central to their more positive outlook for the commodity.
The research firms maintained their average CPO price assumptions at RM4,450 per tonne for 2026 and RM4,500 per tonne for 2027.
However, weaker crude oil prices have recently reduced the relative attractiveness of palm oil-based biodiesel. PublicInvest noted that CPO prices had fallen by almost 10% during the month following a correction in crude oil prices.
The investment bank considers the recent weakness potentially unsustainable, pointing to tightening supplies in Indonesia and East Malaysia. It also highlighted a widening price difference of US$325 per tonne between CPO and soybean oil, which could make palm oil more competitive and encourage additional buying.
Supply conditions remain a key market variable
The outlook for Malaysian palm oil prices will depend on how quickly inventories begin to decline and whether production losses materialise in the months ahead.
Although October exports improved substantially, the continued increase in stocks highlights the scale of the current supply overhang. A seasonal slowdown in production could help rebalance the market, but weaker export demand or changes in trade policy could delay inventory drawdown.
For the biodiesel sector, developments in Indonesia will remain important because palm oil is a major feedstock in the country’s biofuel programme. Any increase in domestic biodiesel consumption could influence regional feedstock availability and international vegetable oil prices.
Bioenergy Business Analysis
The palm oil market illustrates the growing connection between biofuel mandates and agricultural commodity markets. Indonesia’s biodiesel demand is increasingly relevant to regional CPO price expectations, with implications for both the vegetable oil trade and renewable fuel production costs.
Higher palm oil consumption for biodiesel can support feedstock prices, but it can also increase cost pressures for biodiesel producers. The impact will depend on the pace of mandate implementation, domestic feedstock availability, export policies and the relationship between crude oil and vegetable oil prices.
