The outlook for palm oil prices in the second half of 2026 is being shaped by two powerful forces: the anticipated El Niño weather phenomenon and surging demand for biofuels. Analysts project that crude palm oil (CPO) prices will rise significantly as these factors converge. Historically, El Niño events have reduced Malaysia’s palm yields by 13–16%, while simultaneously driving prices up by more than 20%. With meteorological agencies assigning an 80–90% probability to a strong El Niño between June 2026 and February 2027, the market is bracing for tighter supply and higher valuations.

At the same time, global biofuel demand is intensifying. Rising consumption of soybean oil and mustard seed oil for energy purposes is indirectly lifting palm oil prices, as refiners and producers seek alternatives to meet blending mandates. Malaysia’s own biodiesel program (B12) is absorbing more domestic supply, while Indonesia’s reduced export volumes are further constraining availability. Inventories in Malaysia are already shrinking, and this trend is expected to continue through mid-year.

Investment banks are revising their forecasts accordingly. Hong Leong Investment Bank anticipates Malaysian Standard Palm Oil (MSM) prices averaging RM4,350 per tonne in 2026, with a peak around RM4,500–RM4,600 in the second quarter before moderating in the third. Longer-term projections suggest prices stabilizing at RM4,200 per tonne from 2027 onward. CGS International has maintained a “heavily weighted” recommendation on plantation equities, noting that Malaysian producers are likely to benefit more than their Indonesian counterparts due to structural supply differences.

Sector Implications

• Plantations: Malaysian plantation companies stand to gain from higher selling prices, though yields may be pressured by El Niño. Profit margins could expand in the near term, especially for firms with efficient cost structures and diversified downstream operations.
• Biofuels & Energy: Rising palm oil prices will increase feedstock costs for biodiesel producers. However, government blending mandates and the global push for renewable energy should sustain demand. Companies in this sector may face margin compression unless subsidies or pricing adjustments are introduced.
• Consumer Goods & Food Manufacturing: Higher palm oil prices will raise input costs for packaged food, confectionery, and personal care manufacturers. This could lead to price increases for end consumers or margin pressures for producers, depending on their ability to pass costs along the value chain.
• Commodities & Trading: Traders and refiners will experience heightened volatility. Those with strong hedging strategies may capitalize on price swings, while others could face squeezed margins if caught on the wrong side of the market.
• Logistics & Shipping: Reduced export volumes from Indonesia and shifting trade flows may benefit logistics providers in Malaysia, particularly those handling palm oil shipments.

In the near term, the convergence of weather-driven supply constraints and biofuel-driven demand growth sets the stage for elevated palm oil prices. While plantation companies are positioned to benefit, downstream industries reliant on palm oil as a key input will need to manage rising costs carefully. The broader commodities market should expect volatility, with opportunities for well-prepared players to capture value.