KUALA LUMPUR (Nov 11): Malaysia's palm oil inventories are expected to start declining in the first quarter of next year as production growth slows from its seasonal peak. 

Potential El Niño-related dry weather and firm biofuel demand could further tighten supply, said analysts.

CGS International expects inventories to remain elevated until end-2026, keeping crude palm oil (CPO) prices under pressure in the near term. 

At the time of writing on Wednesday, CPO futures for February 2027 delivery were trading at RM4,379 per tonne on Bursa Malaysia Derivatives.

“From 1Q2027F, however, we expect stocks to draw down as production growth moderates, with any return of dry weather and firm biofuel demand likely to tighten the market further,” it said in a note to clients on Wednesday.

Malaysia's palm oil inventories rose for the seventh consecutive month, increasing 3.2% month-on-month to a record 3.62 million tonnes in October 2026, according to data from the Malaysian Palm Oil Board (MPOB). 

Higher opening stocks and stronger seasonal production more than offset the increase in exports.

The build-up in inventories has also raised concerns among independent palm oil millers, who could face difficulties selling their crude palm oil as refineries reportedly move to halt deliveries amid record-high stock levels.

CPO production rose 1.7% month-on-month to a record 2.15 million tonnes in October, supported by seasonal factors, improved labour availability and favourable weather conditions. Meanwhile, palm oil exports surged 55.7% month-on-month to 1.71 million tonnes, driven by higher shipments to India.

“While exports rebounded strongly in October, Malaysia's export momentum may moderate going forward as Indonesia's 20% reduction in CPO export duty and levy from November 2026 could shift demand towards Indonesian palm products,” CGS added.
 
In a separate note, Hong Leong Investment Bank (HLIB) said it expects inventories to remain elevated in the near term, as weaker exports could offset the impact of a seasonal slowdown in production, which is expected to begin in November 2026.

However, a potential waiver of the palm oil export tax could accelerate the drawdown in inventories beyond current expectations, it said.

“Beyond 1Q2027, we expect inventories to trend lower as the lagged effects of El Niño begin to weigh on output,” HLIB said in a note.

The research house maintained its average CPO price assumptions of RM4,450 per tonne for 2026 and RM4,500 per tonne for 2027, supported by an expected tightening in the palm oil supply-demand balance as stronger Indonesian biodiesel demand coincides with El Niño-related production losses.