Palm oil market analysis: A tug-of-war between bulls and bears amid export policy competition and biodiesel demand.
2026-05-29 18:56:39
On Friday (May 29), Malaysian BMD crude palm oil futures for August delivery closed at 4,535 ringgit per tonne, down slightly by 0.04% on the day, but still recording its second consecutive weekly gain, with a weekly increase of 1.09%. The Dalian Commodity Exchange's soybean oil futures main contract rose 0.75% on the day, and the palm oil main contract rose 0.37%, while Chicago soybean oil futures also rose slightly by 0.1%. Malaysian palm oil futures traded with a slightly bullish bias this week. The weekly positive close reflects the market's continued digestion of changes in Indonesian policy and expectations for biodiesel demand, but the slight intraday decline also suggests the coexistence of short-term profit-taking and weak demand. The Bursa Malaysia will be closed from June 1 to 2, and trading will resume on June 3.
The biggest market variable this month came from Indonesia. On May 20th, President Prabowo announced in parliament that exports of strategic resources such as palm oil, coal, and ferroalloys must be managed centrally by state-owned enterprises designated by the government. Producers will continue to be responsible for production, but export transactions will be handled by these state-owned enterprises, which will then connect with overseas buyers. A prominent analysis points out that this policy aims to combat long-standing issues such as underreporting of invoices, transfer pricing, and foreign exchange outflows—Prabowo disclosed that these loopholes have cost the country approximately $908 billion over the past 34 years.
However, the chain reaction following the policy's implementation far exceeded expectations. On May 29, the Indonesian government held an emergency meeting with palm oil farmers' organizations to address concerns about the sharp drop in fresh fruit bunches (FFB) prices. The Indonesian National Palm Oil Growers Union reported that the uncertainty surrounding the new policy caused FFB prices to plummet from approximately 2,800 Indonesian Rupiah/kg to about 1,000 Indonesian Rupiah/kg, and the suspension of purchases by some companies further exacerbated the panic in the spot market. On the same day, Indonesia set its June crude palm oil reference price at US$1,029.51/ton, a decrease of approximately 1.9% from May's US$1,049.58/ton, indicating a softening in official pricing.
From the timeline of market reactions, the policy underwent two phases of pricing: initially, market panic over Indonesia's competition for pricing power would tighten global supply, causing Malaysian palm oil futures to rebound strongly; subsequently, official clarification that the new regulations did not constitute nationalization and that some palm oil derivatives were exempted quelled the panic, leading to a pullback in prices. This indicates that market focus is shifting from supply disruption fears to the details of policy implementation and the actual impact of the transition period . The transition period officially began on June 1st, requiring private enterprises to gradually transfer transactions to state-owned enterprise channels. The next two months will be a crucial window for evaluating the efficiency of policy implementation.
High-frequency production data signals a slowdown in output growth. MPOA data shows that Malaysian output from May 1-20 decreased by an estimated 2.19% month-on-month, with Peninsular Malaysia down 5.70%, Sabah down 6.10%, and only Sarawak seeing a 21.12% increase due to a low base in the previous period. SPPOMA data shows that output from May 1-15 declined by 16.42% month-on-month. Although the April MPOB report showed a significant 18.37% month-on-month increase in output to 1.6298 million tons, high-frequency data since May indicates a clear cooling in the momentum of production growth, with yield recovery per unit area falling short of expectations.
Long-term weather risks are becoming a core variable in market pricing. NOAA's latest forecast shows a 65% probability that the El Niño phenomenon between October 2026 and February 2027 will develop into a strong or very strong event, with some agencies warning that this could be the strongest El Niño event in nearly a century and a half. Multiple meteorological agencies predict that El Niño will lead to a significant reduction in rainfall in Indonesia and Malaysia, potentially resulting in a loss of 1 to 2 million tons of palm oil production in Indonesia. Historical experience shows that the impact of El Niño on production typically lags by 6 to 9 months, meaning the market will gradually price in the expected production reduction in 2027 in the second half of the year.
Meanwhile, the Indonesian Forestry Task Force has confiscated concessions for 5 million hectares of palm oil plantations and transferred 2.37 million hectares to state-owned grower Agrinas. This land consolidation action, linked to the new export policy, suggests that the Indonesian government is systematically strengthening its control over the upstream and midstream of the palm oil industry chain.
Short-term demand remains weak. ITS data shows that Malaysia's palm oil exports from May 1st to 25th totaled 1.0198 million tons, a 14.5% decrease compared to the same period in April. Exports to the EU fell to 237,100 tons, and exports to India and the subcontinent fell to 171,400 tons, with all three major destinations experiencing declines. Data from the Indian Refiners' Association shows that India's palm oil imports in April fell to 513,403 tons, the lowest level since December 2025. Analysts from well-known institutions point out that the current price premium of palm oil relative to soybean oil has weakened its competitiveness in the edible market, and Indian buyers are turning to the more cost-effective soybean oil; this trend is expected to continue in the short term.
Medium- to long-term demand is strongly driven by biodiesel policies. Malaysia will officially upgrade its biodiesel blending standard from B10 to B15 on June 1st, which is expected to increase palm oil consumption by 380,000 tons. Indonesia is scheduled to enforce the B50 policy on July 1st, which will increase palm oil demand by approximately 3.5 to 4.5 million tons compared to the current B40 standard. It is estimated that after the implementation of B50, Indonesia's demand for crude palm oil for biodiesel will reach approximately 19 million tons, potentially reducing exports by about 5.3 million tons, which will profoundly reshape the global palm oil trade landscape. With both policies coming to a close, June and July will be a crucial window to verify the effectiveness of their implementation.
Regarding external edible oils, data from the European Commission shows that as of May 24, 2025/26, EU palm oil imports decreased by 4% year-on-year to 2.55 million tons, while soybean imports decreased by 8% to 11.95 million tons. The structural contraction in European demand continues, but the absolute volume remains high, and has not yet exerted significant downward pressure on prices.
The palm oil market is currently at a crossroads of multiple forces: the implementation details of Indonesia's new export policy remain unclear, Malaysian production growth momentum is weakening, expectations of production cuts due to the strong El Niño phenomenon continue to rise, and demand for B15 and B50 biodiesel is about to be released in a concentrated manner—these intertwined factors suggest that the market may experience wide fluctuations in the short term to digest uncertainties, but the medium- to long-term tight supply and demand situation remains unchanged. In the coming month, traders should pay close attention to three key signals: first, the actual operation of Indonesia's export transition period; second, the consumption data feedback after the implementation of Malaysia's B15 policy on June 1st; and third, further confirmation of production trends by SPPOMA and MPOA in early June.
What are the core elements of Indonesia's new export policy?
The Indonesian government requires that exports of strategic resources such as palm oil and coal be managed centrally through designated state-owned enterprises. Producers continue to be responsible for planting and processing, but the state-owned enterprises handle export transactions, connecting with overseas buyers and settling accounts. This policy is not intended to nationalize private assets; its core objective is to combat underreporting of invoices, transfer pricing, and foreign exchange outflows.
Why did Malaysian palm oil futures show consecutive weekly gains but close lower on the daily chart?
The weekly rise reflects the market's pricing in the medium- to long-term positive impact of tightening Indonesian export policies and expanding biodiesel demand; the intraday decline indicates short-term pressure from weak export data (a 14.5% month-on-month decrease in exports for the first 25 days of May) and profit-taking. The coexistence of medium- to long-term positive factors and short-term negative factors has led to increased intraday volatility.
How much impact does the B50 policy have on the global palm oil supply and demand pattern?
Indonesia's B50 policy will add an additional 3.5 to 4.5 million tons of industrial demand for palm oil, bringing the total demand to approximately 19 million tons. To meet domestic demand, Indonesia's exports may decrease by about 5.3 million tons, equivalent to a considerable share of global trade, significantly tightening global supply and providing long-term support for international prices.
What is the mechanism by which El Niño affects palm oil production?
El Niño has led to reduced rainfall in major producing areas of Southeast Asia, and drought begins to affect the yield and oil extraction rate of oil palm fruit bunches with a lag of 6 to 9 months. NOAA predicts a strong El Niño event may occur at the end of 2026, with the agency estimating a production loss of 1 to 2 million tons in Indonesia. The market will gradually price in the expected production reduction in 2027 in the second half of the year.
Where does the biggest uncertainty in the current palm oil market come from?
The biggest uncertainty stems from the implementation details and transitional effects of Indonesia's new export policy. After its phased implementation starting June 1st, questions such as whether state-owned enterprise export platforms can operate smoothly, whether the sharp drop in FFB prices will force policy adjustments, and whether exporters will lose overseas customers will directly impact near-month price trends and are the focus of short-term market speculation.
Indonesia's new export policy: From panic pricing to digesting the details
The biggest market variable this month came from Indonesia. On May 20th, President Prabowo announced in parliament that exports of strategic resources such as palm oil, coal, and ferroalloys must be managed centrally by state-owned enterprises designated by the government. Producers will continue to be responsible for production, but export transactions will be handled by these state-owned enterprises, which will then connect with overseas buyers. A prominent analysis points out that this policy aims to combat long-standing issues such as underreporting of invoices, transfer pricing, and foreign exchange outflows—Prabowo disclosed that these loopholes have cost the country approximately $908 billion over the past 34 years.
However, the chain reaction following the policy's implementation far exceeded expectations. On May 29, the Indonesian government held an emergency meeting with palm oil farmers' organizations to address concerns about the sharp drop in fresh fruit bunches (FFB) prices. The Indonesian National Palm Oil Growers Union reported that the uncertainty surrounding the new policy caused FFB prices to plummet from approximately 2,800 Indonesian Rupiah/kg to about 1,000 Indonesian Rupiah/kg, and the suspension of purchases by some companies further exacerbated the panic in the spot market. On the same day, Indonesia set its June crude palm oil reference price at US$1,029.51/ton, a decrease of approximately 1.9% from May's US$1,049.58/ton, indicating a softening in official pricing.
From the timeline of market reactions, the policy underwent two phases of pricing: initially, market panic over Indonesia's competition for pricing power would tighten global supply, causing Malaysian palm oil futures to rebound strongly; subsequently, official clarification that the new regulations did not constitute nationalization and that some palm oil derivatives were exempted quelled the panic, leading to a pullback in prices. This indicates that market focus is shifting from supply disruption fears to the details of policy implementation and the actual impact of the transition period . The transition period officially began on June 1st, requiring private enterprises to gradually transfer transactions to state-owned enterprise channels. The next two months will be a crucial window for evaluating the efficiency of policy implementation.
Supply side: Slowing production growth coupled with El Niño expectations
High-frequency production data signals a slowdown in output growth. MPOA data shows that Malaysian output from May 1-20 decreased by an estimated 2.19% month-on-month, with Peninsular Malaysia down 5.70%, Sabah down 6.10%, and only Sarawak seeing a 21.12% increase due to a low base in the previous period. SPPOMA data shows that output from May 1-15 declined by 16.42% month-on-month. Although the April MPOB report showed a significant 18.37% month-on-month increase in output to 1.6298 million tons, high-frequency data since May indicates a clear cooling in the momentum of production growth, with yield recovery per unit area falling short of expectations.
Long-term weather risks are becoming a core variable in market pricing. NOAA's latest forecast shows a 65% probability that the El Niño phenomenon between October 2026 and February 2027 will develop into a strong or very strong event, with some agencies warning that this could be the strongest El Niño event in nearly a century and a half. Multiple meteorological agencies predict that El Niño will lead to a significant reduction in rainfall in Indonesia and Malaysia, potentially resulting in a loss of 1 to 2 million tons of palm oil production in Indonesia. Historical experience shows that the impact of El Niño on production typically lags by 6 to 9 months, meaning the market will gradually price in the expected production reduction in 2027 in the second half of the year.
Meanwhile, the Indonesian Forestry Task Force has confiscated concessions for 5 million hectares of palm oil plantations and transferred 2.37 million hectares to state-owned grower Agrinas. This land consolidation action, linked to the new export policy, suggests that the Indonesian government is systematically strengthening its control over the upstream and midstream of the palm oil industry chain.
Demand side: Short-term exports are under pressure, but biodiesel demand is about to be released.
Short-term demand remains weak. ITS data shows that Malaysia's palm oil exports from May 1st to 25th totaled 1.0198 million tons, a 14.5% decrease compared to the same period in April. Exports to the EU fell to 237,100 tons, and exports to India and the subcontinent fell to 171,400 tons, with all three major destinations experiencing declines. Data from the Indian Refiners' Association shows that India's palm oil imports in April fell to 513,403 tons, the lowest level since December 2025. Analysts from well-known institutions point out that the current price premium of palm oil relative to soybean oil has weakened its competitiveness in the edible market, and Indian buyers are turning to the more cost-effective soybean oil; this trend is expected to continue in the short term.
Medium- to long-term demand is strongly driven by biodiesel policies. Malaysia will officially upgrade its biodiesel blending standard from B10 to B15 on June 1st, which is expected to increase palm oil consumption by 380,000 tons. Indonesia is scheduled to enforce the B50 policy on July 1st, which will increase palm oil demand by approximately 3.5 to 4.5 million tons compared to the current B40 standard. It is estimated that after the implementation of B50, Indonesia's demand for crude palm oil for biodiesel will reach approximately 19 million tons, potentially reducing exports by about 5.3 million tons, which will profoundly reshape the global palm oil trade landscape. With both policies coming to a close, June and July will be a crucial window to verify the effectiveness of their implementation.
Regarding external edible oils, data from the European Commission shows that as of May 24, 2025/26, EU palm oil imports decreased by 4% year-on-year to 2.55 million tons, while soybean imports decreased by 8% to 11.95 million tons. The structural contraction in European demand continues, but the absolute volume remains high, and has not yet exerted significant downward pressure on prices.
Overall Outlook
The palm oil market is currently at a crossroads of multiple forces: the implementation details of Indonesia's new export policy remain unclear, Malaysian production growth momentum is weakening, expectations of production cuts due to the strong El Niño phenomenon continue to rise, and demand for B15 and B50 biodiesel is about to be released in a concentrated manner—these intertwined factors suggest that the market may experience wide fluctuations in the short term to digest uncertainties, but the medium- to long-term tight supply and demand situation remains unchanged. In the coming month, traders should pay close attention to three key signals: first, the actual operation of Indonesia's export transition period; second, the consumption data feedback after the implementation of Malaysia's B15 policy on June 1st; and third, further confirmation of production trends by SPPOMA and MPOA in early June.
Frequently Asked Questions
What are the core elements of Indonesia's new export policy?
The Indonesian government requires that exports of strategic resources such as palm oil and coal be managed centrally through designated state-owned enterprises. Producers continue to be responsible for planting and processing, but the state-owned enterprises handle export transactions, connecting with overseas buyers and settling accounts. This policy is not intended to nationalize private assets; its core objective is to combat underreporting of invoices, transfer pricing, and foreign exchange outflows.
Why did Malaysian palm oil futures show consecutive weekly gains but close lower on the daily chart?
The weekly rise reflects the market's pricing in the medium- to long-term positive impact of tightening Indonesian export policies and expanding biodiesel demand; the intraday decline indicates short-term pressure from weak export data (a 14.5% month-on-month decrease in exports for the first 25 days of May) and profit-taking. The coexistence of medium- to long-term positive factors and short-term negative factors has led to increased intraday volatility.
How much impact does the B50 policy have on the global palm oil supply and demand pattern?
Indonesia's B50 policy will add an additional 3.5 to 4.5 million tons of industrial demand for palm oil, bringing the total demand to approximately 19 million tons. To meet domestic demand, Indonesia's exports may decrease by about 5.3 million tons, equivalent to a considerable share of global trade, significantly tightening global supply and providing long-term support for international prices.
What is the mechanism by which El Niño affects palm oil production?
El Niño has led to reduced rainfall in major producing areas of Southeast Asia, and drought begins to affect the yield and oil extraction rate of oil palm fruit bunches with a lag of 6 to 9 months. NOAA predicts a strong El Niño event may occur at the end of 2026, with the agency estimating a production loss of 1 to 2 million tons in Indonesia. The market will gradually price in the expected production reduction in 2027 in the second half of the year.
Where does the biggest uncertainty in the current palm oil market come from?
The biggest uncertainty stems from the implementation details and transitional effects of Indonesia's new export policy. After its phased implementation starting June 1st, questions such as whether state-owned enterprise export platforms can operate smoothly, whether the sharp drop in FFB prices will force policy adjustments, and whether exporters will lose overseas customers will directly impact near-month price trends and are the focus of short-term market speculation.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
