KUALA LUMPUR (Aug 19): Crude palm oil (CPO) prices are expected to remain firm above RM4,600 per tonne in September, supported by tightening supply fundamentals and continued geopolitical disruptions to global trade flows, according to the Malaysian Palm Oil Council (MPOC).

"Crude palm oil futures (FCPO) forward contracts for 2027 traded on Bursa Malaysia Derivatives (BMD) were also above RM5,000 per tonne as of mid-August, reflecting market concerns over the potential impact of El Niño. 

"Indonesia’s palm oil demand for B50 biodiesel blending could also strengthen further as the three-month transition period to clear the remaining B40 biodiesel stocks ends in September," the MPOC said in a statement on Wednesday.

Malaysia’s palm oil production rose by 9.4% month-on-month to 1.79 million tonnes in July 2026, an increase of 154,000 tonnes. 

However, production in July 2026 remained below last year’s level, marking the fifth consecutive month of year-on-year decline since March 2026. 

Export performance strengthened further in July, with shipments rising by 14.5% month-on-month to 1.39 million tonnes. 

The improvement was mainly driven by stronger buying from India ahead of Diwali, as well as continued strong demand from the Sub-Saharan Africa region. 

Meanwhile, palm oil stocks continued to increase in July, reaching 2.62 million tonnes. 

"However, the stock build-up in Malaysia is not a major concern, as strong biodiesel demand and front-loading of exports in Indonesia have kept Indonesian palm oil stocks relatively low."

"The price rally following the MPOB’s (Malaysian Palm Oil Board) release of its supply and demand data on Aug 10 further reinforced the view that current palm oil stock levels are not excessive, although overall supply remains comfortable for the time being."

The MPOC said the global vegetable oil market continued to be supported by biofuel demand and geopolitical uncertainty in August, with palm oil leading the gains. 

Malaysian crude palm oil prices rose by 3.9% during the month, compared with increases of 2.7% for sunflower oil and 1.1% for soybean oil in Argentina. Meanwhile, rapeseed oil prices in Europe declined marginally by 0.8%. 

Malaysia’s palm oil production typically peaks in September or October before declining in the fourth quarter. Production growth in the first seven months of 2026 was largely supported by an improvement in the oil extraction rate (OER) of fresh fruit bunches (FFB). 

Malaysia’s OER from January to May 2026 was significantly above the 10-year average, supported by favourable rainfall conditions six months earlier. However, OER fell below the 10-year average in June and July 2026 and is projected to remain below the average for the rest of the year.

As production enters its seasonal downtrend in the fourth quarter and OER eases from the high levels recorded between January and May, palm oil production is expected to decline year-on-year in the fourth quarter of 2026, tightening supply towards the end of the year.

Ongoing geopolitical disruptions — including disrupted Red Sea shipping, declining Strait of Hormuz traffic, and suspended Black Sea port operations — are rerouting global vegetable oil trade flows and tightening sunflower oil supplies. 

These shifts are driving major importers like India towards palm oil, with July imports surging 49.8% month-on-month, while sunflower oil growth lagged at just 3.6%. 

Supportive biodiesel economics, particularly in Indonesia where CPO remains cheap relative to gasoil, continue to bolster blending demand and margins. 

However, downside risks persist if Black Sea bottlenecks ease, new sunflower crops arrive, or energy prices drop amid improving geopolitical conditions.