Palm oil futures in Kuala Lumpur rose as much as 1.7% to RM4,977 a tonne on Thursday, the highest intraday level since December 2024.

(Aug 20): Palm oil climbed to its highest level in about 20 months, as rising biofuel demand and mounting production risks from the strengthening El Niño underpin prices.

Indonesia, the world’s largest producer, recently started its ambitious B50 biofuel mandate, which is poised to funnel more of the crop into fuel and curb the country’s exports. 

In addition, a dry spell has recently hit farmers there and in No 2 grower Malaysia. The El Niño weather pattern is known for bringing dryness to much of Southeast Asia, weighing on production of the tropical oil. The US Department of Agriculture forecast global palm oil reserves to fall to a nine-year low in the 2026-27 season.

The unfavourable weather outlook is fuelling speculative buying as the market expects the El Niño will curb Indonesian and Malaysian output, said Budiman Suwardi, head of treasury and markets at Prime EcoHarvest Commodities. Buyers also trying to secure supply before Oct 1 when Indonesia’s B50 biodiesel mandate is fully running, he added.

Futures in Kuala Lumpur rose as much as 1.7% to RM4,977 a tonne on Thursday, the highest intraday level since December 2024. The rally comes as other key crop staples, including corn and sugar, are also climbing, potentially lifting food inflation. 

Recent attacks in the Black Sea have also slowed crop exports from Russia and Ukraine to a trickle. The countries are major sunflower oil suppliers, and buyers are turning to rival vegetable oils to help fill the gap.

The high on Thursday was “technically a breakout point”, said Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental Ltd. However, several factors could cap prices from rallying further, including a strengthening ringgit and competitive soy oil prices, he added.

Source : The Edge Malaysia