Palm Oil Supply Chain Exposed as Malaysian and Indonesian Dominance Takes Its Toll

Palm oil production is concentrated in Malaysia and Indonesia to an unprecedented degree, making it a prime target for supply risks. According to Isabela Garcia, Senior Market Intelligence Analyst at StoneX, these two countries account for nearly 90% of global palm oil production, with the remaining 10% spread across other regions.

The current El Niño conditions expected between November and February are already weighing on market sentiment, as drought and wildfire risks threaten yields in Malaysia and Indonesia. Garcia notes that the effects of these weather shocks usually take place with a lag of 6 to 12 months, which means markets are trying to price the risk long before the tonnage actually goes missing.

Indonesia's B50 mandate is also diverting between 1.9 and 2 million tonnes of palm oil toward domestic consumption, further tightening the global supply base. With commercial buyers relying on forward availability, the forecasted risks are already affecting prices in the market.