Malaysia's Palm Oil Market Faces Paradoxical Inventory Surge and Supply Squeeze Fears

The palm oil market in Malaysia is experiencing a paradoxical situation where inventories have swelled to their highest level this year, but analysts predict a potential supply squeeze next year due to El Nino.

The August inventory build reached 2.82 million tonnes, up 7.5% month-on-month and 28.2% year-on-year. Despite the surge in stocks, crude palm oil prices remain firm, with some forecasting even higher prices in 2027 as El Nino's impact on production begins to take hold.

RHB Research expects CPO prices to average between RM4,400 and RM4,500 a tonne this year, while CIMB Securities forecasts that CPO could reach RM4,600 a tonne due to favourable biofuel economics and tightening global vegetable oil supply.

However, the outlook is not without risks. PublicInvest notes that unusually dry conditions and low rainfall in Indonesia and Malaysia over the past six weeks, compounded by reduced fertiliser application, raise downside risks to palm oil production from 2027.