Palm Oil Prices Set to Surge in 2027 Amid B50 Mandate and El Niño
Crude palm oil (CPO) prices are poised for further gains heading into 2027, driven by a mix of geopolitical tensions, domestic policies, and climatic factors. As of now, CPO futures have surged 19.5% since the onset of the US-Iran conflict, with experts anticipating continued upward momentum. Brent crude trading near $104 per barrel has narrowed the subsidy gap between biodiesel and diesel, making Indonesia's B50 mandate financially viable. This mandate is expected to consume a record volume of palm oil domestically, potentially tightening exportable supplies.
David Ng, a senior trader at IcebergX, suggests that the B50 mandate is already priced into the market. Further price increases will depend on production trends and export levels. Global vegetable oil production is projected to grow, but palm oil is the only major oil expected to shrink, with exports declining 2% in 2026/27. Indonesia's production is set to increase slightly, but domestic consumption will match this growth, leaving less for exports.
The B50 rollout is nearly complete, with the blend available at 94% of filling stations. This policy will require between 16.3 million and 17 million tonnes of CPO annually, up from 15.2 million tonnes under the previous B40 mandate. While this increase may seem modest, it significantly reduces the share of production available for export, maintaining a tight supply situation.
An intensifying El Niño, now confirmed rather than forecasted, poses a significant risk to palm oil production. The World Meteorological Organization predicts a near-100% likelihood of the event persisting until February 2027, with potential production declines of 2% to 8% in 2027. Historical data shows that the 2015 El Niño led to a 13.2% drop in Malaysian CPO production the following year, highlighting the potential severity of the current situation.
Despite these challenges, there is a ceiling to how high CPO prices can rise. Major importers like India and China may switch to alternative oils if the price discount narrows too much. India's palm oil imports are expected to rise, but it is also increasing imports of sunflower and soybean oils. China's palm oil imports are forecast to remain flat, with a significant increase in sunflower oil imports. Traders are watching the relative price of palm oil against soybean oil, currently at a premium of about $300 per tonne, to gauge potential demand shifts.