Malaysia Palm Oil Stocks Could Peak in October as CPO Prices Approach Possible Turning Point
By Fact Harbour News
Malaysia’s palm oil market could be approaching an important shift as domestic inventories are expected to reach a cyclical peak this month, potentially creating room for crude palm oil (CPO) prices to recover in the months ahead.
Public Investment Bank Bhd (PublicInvest) said Malaysian palm oil inventories are expected to rise above three million tonnes in September, which would represent their highest level since 2018. The increase follows six consecutive months of stock accumulation and has been linked largely to strong seasonal production and weaker demand from some major international markets.
The investment bank said demand from China, Europe and the Middle East has been relatively subdued, while some buyers have shifted towards Indonesian crude palm oil because of its lower price compared with Malaysian supplies.
The competitive pressure was particularly visible in August, when Indonesia recorded a significant increase in palm oil exports while Malaysia experienced a decline, according to PublicInvest.
The development has contributed to pressure on Malaysian CPO prices, with elevated inventories making it more difficult for prices to sustain earlier gains.
However, PublicInvest expects the situation to gradually change from November as production growth begins to moderate. The firm anticipates a more substantial reduction in Malaysian inventories around the middle of 2027, partly because of the delayed effects of El Niño on fresh fruit bunch yields and overall palm oil production.
A sustained reduction in inventories could strengthen the fundamental outlook for CPO, particularly if stock levels begin falling consistently. PublicInvest believes such a trend could encourage renewed momentum in palm oil prices after the recent period of weakness.
Available data from the Malaysian Palm Oil Board showed local delivered CPO at RM4,364 per tonne on October 2, while another MPOB listing showed an October reference price of RM4,390.50 per tonne on October 1.
PublicInvest puts its full-year CPO price assumption at RM4,500 per tonne, compared with a year-to-date average of approximately RM4,430 per tonne.
Beyond inventories and demand, weather conditions are emerging as another important factor for the palm oil market. PublicInvest is monitoring the possible effects of El Niño on palm-producing regions, particularly because adverse weather can affect fresh fruit bunch yields and subsequently reduce palm oil production.
The investment bank said the strength and duration of the current El Niño episode remain uncertain. It noted that recent sea-surface temperature patterns have shown similarities with the strong 1997/98 El Niño event, although the eventual agricultural impact remains difficult to determine.
A stronger-than-expected weather event could reduce production across important palm oil-producing areas. Lower supply, combined with stable or improving demand, could tighten the global vegetable-oil market and provide support for CPO prices.
Crude oil prices are another factor being watched by analysts. Higher petroleum prices can improve the relative attractiveness of palm-based biodiesel by making alternative fuel sources more competitive.
Indonesia’s planned B50 biodiesel programme could also become an important source of additional palm oil demand. The policy would increase domestic consumption of CPO for biodiesel and could reduce the amount available for export, potentially tightening international supply.
The outlook comes after Malaysian CPO futures recently experienced pressure from rising inventories and softer export demand. Bernama reported on September 30 that concerns over domestic stocks and subdued buying from major markets such as India and China had weighed on futures prices.
The broader vegetable-oil market has also influenced sentiment. Weakness in competing oils, including soybean and sunflower oil, has affected palm oil’s relative attractiveness and encouraged traders to remain cautious.
Despite the short-term pressure, PublicInvest maintained its positive sector view, arguing that the plantation industry could benefit if inventories reach their expected peak and the effects of weather-related production disruptions begin to emerge.
The investment bank retained Sarawak Plantation Bhd and Ta Ann Holdings Bhd among its preferred plantation stocks, citing their valuations, earnings prospects and exposure to a potential improvement in the CPO cycle.
For the global palm oil market, the coming months will therefore be closely watched. The combination of Malaysian inventory levels, Indonesian biodiesel demand, international buying patterns, crude oil prices and weather conditions could determine whether the current weakness develops into a longer correction or marks the beginning of a new price cycle.
For Malaysia, a sustained reduction in palm oil inventories would be particularly significant because the commodity remains an important component of the country’s agricultural and export economy.
