MARC Ratings: Crude palm oil price to soften in 2026

The crude palm oil (CPO) market is expected to enter 2026 with a softer outlook, following the relatively elevated prices recorded in 2025. MARC Ratings projects prices to range between RM3,850 per metric tonne (MT) and RM4,250/MT in 2026 (2025F: RM4,300/MT). The softer trajectory is underpinned by more favourable weather patterns, recovering yields, and a gradual normalisation in global production, reflecting a shift from the tight supply conditions seen in early 2025. While CPO prices were higher in 2025 compared to 2024, an unexpectedly large supply surge in Indonesia kept prices below MARC Ratings' initial expectations.

Heightened biodiesel demand and a weaker US dollar helped underpin a higher average CPO price in 2025 compared to 2024, further supported by the elevated prices of competing vegetable oils earlier in the year and Indonesia's move to increase its biodiesel blend rate to 40% (B40) from 35% (B35). A 10% increase in the biodiesel blend rate could raise annual palm oil consumption by above 4 million MT, or around 5% of global production.

However, overall supply gains led to a lower CPO price peak in 2025 compared to 2024, with the CPO price peaking at RM4,875 in 2025, below the 2024 high of RM5,343. Furthermore, in recent years, rising palm oil production has been supported by yield recovery with the improved weather conditions after the 2023-2024 El Niño event. Output in Indonesia rose significantly by 11.3% year-to-date as at September 2025, while Malaysia posted a modest 1.8% increase as at October 2025.

Despite the surge in total CPO production in 2025, MARC Ratings believes there are challenges in raising long-term supply. For example, Malaysia continues to struggle with an ageing plantation profile, with replanting rates averaging only about 2% over the past decade, well below the recommended 4% annually. High upfront costs continue to deter both smallholders and commercial estates from undertaking large-scale replanting. Indonesia faces similar challenges; while corporate estates under the Indonesian Palm Oil Association (GAPKI) achieve a replanting rate of around 4%-5% annually, smallholder replanting has only reached slightly above 20% of the government's target for 2024. Regulatory pressures, including the European Union Deforestation Regulation (EUDR) scheduled for enforcement in 2026, will add further compliance burdens, especially in documentation and traceability, and constrain potential plantation expansion.

Going into 2026, demand dynamics remain broadly supportive despite some variation between markets. US Department of Agriculture (USDA) forecasts suggest global palm oil consumption will grow, albeit remaining slightly below total production. India, the largest importer, is expected to sustain strong purchases, supported by palm oil's price competitiveness relative to soybean and sunflower oils. Meanwhile, the Food and Agriculture Organization (FAO) of the United Nations projects a 2.1% increase in the utilisation of global oils and fats in 2026, led predominantly by the biofuel sector.

Substitute oils are expected to record mixed output trends in 2026, as prospects for soybean and rapeseed oils are uneven. Brazil, the world's largest soybean producer, is expected to increase output, while the US and Argentina project slightly lower harvests. For rapeseed, cumulative precipitation in both Canada and Europe remains below historical averages, which may hinder yield recovery and limit production growth. Collectively, these mixed conditions for competing oils suggest that CPO may struggle to revisit the price highs observed in late 2024 and early 2025.

Overall, the market continues its transition from cyclical tightness towards a more stable structural balance, supported by rising production as weather conditions improve. MARC Ratings opines that palm oil prices in 2026 are expected to ease from 2025 levels and hover around RM3,850/MT-RM4,250/MT. Reflecting supply seasonality, the futures market is signalling a period of contango heading into 1H2026 before shifting into backwardation in 2H2026. Upside potential to CPO price would depend on the implementation of government policies that drive biodiesel demand. Downside risks include weaker biodiesel uptake due to substitution prompted by softer crude oil prices, reduced import demand from key consuming economies, and price competition from substitute vegetable oils.