Palm Oil Prices To Hold Despite Policy-Driven Support: BMI
02/07/2025 (Business Today) - Global palm oil prices are expected to remain largely capped for the remainder of 2025 despite some policy-driven support, as ample supply from key producers Malaysia and Indonesia is set to widen the global production surplus. BMI, a Fitch Solutions Company, has maintained its average annual price forecast for Bursa Malaysia-listed crude palm oil (CPO) futures contracts in 2025 at MYR4,150 per tonne.
As of June 27, front-month CPO contracts settled at MYR3,986 per tonne, with the year-to-date average standing at MYR4,360 per tonne. BMI projects CPO prices to trade within the MYR3,800-4,000 per tonne range for the rest of the year.
The palm oil market experienced significant pressure in Q2 2025, with prices declining by 17.7% due to weaker global crude prices, improved Malaysian output, and subdued demand. However, June saw a brief rally, with prices climbing approximately 6% between June 12 and June 16, initially fueled by the Israel-Iran conflict. This rally was further bolstered by the US Environmental Protection Agency’s (EPA) announcement of sharply higher proposed biofuel blending targets for 2026 and 2027, which are expected to provide a firmer floor for palm oil prices.
Ample Supply to Offset Gains
BMI forecasts global palm oil production to reach 80.6 million tonnes in the 2025/26 season, marking a 2.4% year-on-year increase. This rise is primarily driven by an expected 0.5% increase in Malaysia’s output to 19.5 million tonnes and a more substantial 3.3% increase in Indonesia’s production to 47.5 million tonnes.
Malaysia’s crude palm oil output, which faced challenges in Q1 2025, has shown a significant recovery. Latest data for April and May 2025 indicates a 7.8% year-on-year increase in cumulative output, alleviating market tightness and exerting downward pressure on prices. This improved output has also led to a build-up in domestic stockpiles, with CPO stocks reaching 1.1 million tonnes in May – the highest since February 2023.
Indonesia is also experiencing robust production, with April’s output marking an 8.8% year-on-year increase, largely due to seasonal factors. Coupled with subdued export demand (April’s export volume was down 18.3% year-on-year), this has led to a surge in Indonesian palm oil ending stocks, further reinforcing the outlook for ample global supplies.
Consumption Outlook and Emerging Risks
Global palm oil consumption is expected to increase by 1.0% year-on-year to 78.3 million tonnes in the 2025/26 season. Despite this marginal increase, BMI anticipates the global production surplus to widen from 1.2 million tonnes in 2024/25 to 2.3 million tonnes in 2025/26, which is expected to cap global prices through the remainder of 2025 and into the first half of 2026.
However, an emerging risk to this outlook comes from the US EPA’s blending proposals. These proposals have significantly boosted the broader edible oil complex, particularly soy oil, which now trades at a premium. As a result, palm oil is currently priced at a 9.4% discount to soy oil. This favorable pricing is expected to encourage increased demand from key importers such as India and Mainland China.
India’s palm oil consumption is projected to rise by 1.6% year-on-year, with USDA forecasts indicating a significant 10.3% year-on-year increase in import demand, reaching 8.7 million tonnes in 2025/26, driven by lower carryover stocks and competitive pricing. Similarly, China is expected to boost its palm oil import volumes by 8.7% year-on-year in the 2025/26 season. These upticks in demand from major Asian importers are likely to provide a base of support for global palm oil prices, moderating the bearish impact of increased supplies.
Indonesia’s B40 Mandate to Drive Domestic Demand
Indonesia’s implementation of the B40 mandate, requiring 40% biodiesel blending, is set to significantly boost domestic palm oil demand by an estimated 1.8 million tonnes per annum. This will reduce the country’s exportable volumes and is anticipated to shift some import demand towards Malaysian palm oil, thereby lending further support to Bursa Malaysia-listed prices.
Long-Term Outlook: Structural Pressures Remain
Looking further ahead, BMI forecasts a slight easing of prices in 2026 to MYR4,075 per tonne. However, structural pressures on the global palm oil production balance are expected to keep prices elevated throughout the forecast period. Factors contributing to this include a slowdown in harvested area expansion and insufficient investment in productivity improvements. Indonesia’s potential ambition to implement a B50 mandate could further constrain exportable supplies, adding more pressure to the global market balance.