Key facts
- Palm oil prices are forecast to remain high into next year due to drought in Southeast Asia and increased demand for biodiesel.
- The commodity has gained over 15% year-to-date.
- SD Guthrie forecasts CPO prices to reach as high as RM5,200 per tonne in Q1 2027 if El Niño conditions develop.
- CIMB raised its 2026 and 2027 CPO price forecasts to RM4,450 and RM4,550 respectively.
- Indonesia's hotspot activity increased significantly in August 2026, particularly in Kalimantan.
Palm oil prices are expected to remain high into next year as dry weather impacts output in Southeast Asia's key production areas and demand rises for biodiesel, according to market analysts. The commodity has gained more than 15% since the start of the year.
Malaysia's average crude palm oil (CPO) price stood at RM4,493 per tonne last month, up 9.3% year on year. For the first seven months of 2026, CPO averaged at RM4,388 per tonne.
SD Guthrie, one of the world’s largest palm oil producers, expects CPO to trade between RM4,600 and RM5,000 per tonne for the rest of the year, and reach as high as RM5,200 per tonne in the first quarter of 2027 if El Niño conditions develop.
CIMB Securities analyst Ivy Ng Lee Fang noted that the market is seeing actual signs of El Niño's effects on crops, with many parties agreeing that CPO prices will be higher due to potentially lower production going into 2027. She added that the weather phenomenon has had a greater impact on Indonesia than Malaysia.
Indonesia's hotspot activity picked up notably in August 2026, driven by a sharp increase in Kalimantan. CGS International noted in an August 11 note that a forest fire was reported on Aug 3 in East Java province, affecting 550ha, which is indicative of increasingly dry conditions. While current hotspot levels remain below those recorded during past El Niño years, the pace of increase is notable.
Past El Niño events in 2015 and 2022 led to higher CPO prices as production lagged. During the 2015/16 El Niño period, CPO prices rose about 21.5%, while Malaysia’s CPO output subsequently fell to 17.32 million tonnes in 2016 from 19.96 million tonnes in 2015.
CIMB has raised its average CPO price forecast for 2026 and 2027 by RM50 per tonne to RM4,450 and RM4,550 respectively, citing geopolitical risks, strengthening El Niño weather conditions and higher Indonesian biodiesel demand.
PhillipCapital Research expects CPO to trade between RM4,400 and RM4,600 in August and September, with its full-year assumption of RM4,350 per tonne for 2026 and RM4,400 for 2027. It expects Malaysian inventories to remain elevated at between 2.5 million and 2.8 million tonnes over the coming months.
In Malaysia, palm oil averaged approximately USD 1,164.55/MT (FOB) in July and about USD 1,181.44/MT in August, a rise of ~1.5%. China's average import prices increased around 1.6%, from ~USD 1,367.48/MT (CIF) to ~USD 1,389.36/MT, while India's import prices moved up about 1.9%, from nearly USD 1,224.14/MT (CIF) to roughly USD 1,247.39/MT.