Palm oil prices to weaken in 2026, biofuel policy clarity crucial: survey

Palm oil futures on the benchmark Malaysian commodity exchange are expected to average lower in 2026 compared to 2025, due to rising supplies in the main producers, Indonesia and Malaysia. However, the industry expects robust demand to be underpinned by increasing domestic biodiesel use in Indonesia.

In 2026, crude palm oil futures for third-month delivery on Malaysia's commodity exchange are seen to average at MR4,200/metric ton($1,037.40/mt), according to the median estimate of 10 analysts, traders and government agencies surveyed by Platts, part of S&P Global Energy.

The benchmark palm oil contract, which influences international vegetable oil prices, averaged MR4,236.70/mt in 2025, up 4.8% from 2024, and largely in line with Platts' annual price survey estimate of MR 4222.70/mt on Jan. 3.

The softer trajectory is underpinned by more favorable weather patterns, recovering yields, and a gradual normalization in global production, reflecting a shift from the tight supply conditions seen in early 2025, Malaysia-based MARC Ratings said in its annual sector outlook report Dec. 4.

Views from executives across the supply chain consistently showed that clarity on global biofuel policies would be the is the decisive catalyst for prices in 2026. In the short term, inventory fluctuations, weather and the pace of trade flows will keep prices volatile within MR4,000/mt to MR4,300/mt.

Malaysia and Indonesia account for 85% of the world's palm oil supply. While Indonesia is the larger producer of the two, the crude palm oil futures on Malaysia's Bursa Exchange are seen as a global benchmark for palm oil prices.

Palm oil prices in January are expected to remain rangebound between MR 3,800/mt to MR 4,100/mt, the Malaysian Palm Oil Council or MPOC said Dec. 19, as the first quarter is typically the seasonal low for production, while demand is expected to improve ahead of the (Chinese) Lunar New Year and Ramadan, supporting a draw down in stocks.

However, a spillover weakness from the energy market, coupled with abundant oilseed supplies globally, is likely to cap any sustained price recovery, MPOC said, citing falling crude oil prices, which dropped to $55/b in December 2025, the lowest level since February 2021.

Palm oil and crude oil prices are directly related, primarily because palm oil serves as a key feedstock for producing biodiesel. Higher crude oil prices make biodiesel competitive, and are supportive of palm oil demand. Conversely, low crude oil prices reduce demand for biodiesel and palm oil.

Indonesia's biodiesel mandate, which has the world's highest biofuel blending target at 40%, could be the largest driver of demand in the coming year if the government carries out its announced timeline of moving to a 50% blend mandate in 2026, according to some industry participants polled as part of the survey.

Under the current B40 mandate, 23% of Indonesia's annual crude palm oil output -- approximately 50-51 million mt --is used for biodiesel production. A full B50 rollout would increase this share to 41%, consuming about 21 million mt of crude palm oil, according to Dr. Julian McGill of Glenauk Economics, who spoke at an industry conference in November.

The market has once again entered a phase of high output, and there are no convincing bullish catalysts, McGill said, citing renewed doubts over Indonesia's B50 timeline and "Goldilocks" weather year, which has resulted in stronger-than-expected production across Malaysia and Indonesia.

In physical markets at origins, the average price of crude palm oil FOB Indonesia was at $1,090/mt in 2025, according to Platts data. This was higher than its closest rival, Argentina soybean oil FOB upriver at $1,052/mt, but lower than Black Sea Ukraine sunflower oil at $1,173/mt.

Palm oil remains a "structural winner over the next 5-10 years," Dr. Benjamin Hook, head of agribusiness intelligence at UK-based commodity risk firm Global Data, said at an industry event in November. Rising domestic biodiesel use in Indonesia, combined with palm oil's unique role in food and oleochemicals, which other vegetable oils cannot replace, is expected to support its long-term demand.

Meanwhile, Brazilian and US soybean oil exports are likely to face constraints due to domestic biofuel mandates and an increasing reliance on palm oil in the coming year, a Malaysian-based exporter said.