El Niño and Biodiesel Demand to Drive Palm Oil Prices Higher in 2027
Palm oil prices may rise in 2027 due to supply risks caused by El Niño, according to Eddy Martono, chairman of the Indonesian Palm Oil Association. The dry weather associated with El Niño is expected to reduce palm oil production in Indonesia and Malaysia, potentially leading to higher prices. This scenario has played out before, as it did in 2024 when palm oil traded at a premium over soyoil.
The impact of El Niño on palm oil supplies will be compounded by rising biodiesel demand in Indonesia. The country's biodiesel demand is expected to increase by 18.5% in 2027, reaching a record 17.4 million tonnes. This higher demand will put pressure on Indonesian palm oil output, which is forecast to decline by 3.7% to 56.6 million metric tonnes.
The combination of lower output and higher domestic consumption will lead to reduced exports from Indonesia. The country's palm oil exports are expected to fall by 14.9% in 2027 to 26.5 million tonnes, their lowest level since 2016.