MethodologyContact usLogin
Palm oil is the world’s most widely used vegetable oil, accounting for approximately 36% of global edible vegetable oil production. Traditionally used in food manufacturing and cooking oil as well as in the oleochemical sector to produce cosmetics, cleaning products among other things, the use of palm oil and its derivatives as feedstock for renewable energy production has also grown over the last two decades.
That has led to higher demand for palm oil beyond its traditional uses, with the USDA forecasting palm oil consumption in 2023-24 to grow by 4.76% on the year to 78.06 million tonnes.
At the same time, palm oil production has been stagnating in recent years, with the world’s two largest palm oil producers Indonesia and Malaysia experiencing lower yield rates and negative growth in oil palm planted area, capping global supply growth as the two countries remain responsible for around 85% of the world’s palm oil supply.
The shift in supply and demand fundamentals, coupled with extreme volatility stemming from geopolitical changes, weather phenomena and changing government policies have also led to severe fluctuations in palm oil prices over the last few years.
View our analysis of palm oil price trends
Palm oil witnessed unprecedented price swings in the last two years, accelerating to notch multiple record high prices in 2022, testing MYR5,000-7,000 per tonne and then decelerating in 2023 to 20% below the average price levels seen the year before.
Prior to 2022, palm oil prices had ranged between MYR 2,000 to under MYR5,000 per tonne.
Palm and other edible oil prices were on an upward trajectory in 2022 on a perfect storm of Russia’s invasion of Ukraine in February, setting off supply fears for sunflower oil from the Black Sea.
This was shortly followed by Indonesia’s palm oil export ban between March and May, usurping around 2 million tonnes of palm oil from global exports, all whilst Argentina – the world’s largest soybean oil exporter – was experiencing drought-like weather, decimating millions from its soybean and consequently soybean oil supply availability.
The trifecta pushed crude palm oil (CPO) futures on the Bursa Malaysia Derivatives Exchange to reach an all-time high of MYR7,104 per tonne ($1,632) April 29 2022, with prices of related veg oils also experiencing spikes in futures and cash prices.
Since July 2022, prices have overall trended downwards as global edible oil supply tightness gradually eased and importing countries also managed their demand, though this has not stopped governments from adjusting their food import and export policies to contain inflationary fears and ensure a stable edible oil supply.
In February-April 2023, the Indonesian government moved to restrict its palm oil exports as part of measures to keep prices and supply of local cooking oil stable ahead of the Ramadan fasting month and Eid holiday season.
It also raised its domestic market obligation (DMO) for that period, requiring producers to supply more cooking oil locally before they would be allowed to export.
The move, coupled with seasonally lower production in the first quarter of 2023 saw CPO futures on Bursa Malaysia touch a multi-month high of MYR4,352 per tonne on March 3 before easing for the rest of the month.
CPO prices then tested the MYR4,000 per tonne level again in July, when Russia withdrew from the Black Sea Grain Corridor Initiative and escalating tensions renewed worries over sunflower oil supply from the region and pushed up global edible oil prices.
View our veg oil prices
CPO prices breached the MYR4,000 per tonne level for the first time in five months to close at MYR4,017 per tonne on January 26, though prices were unable to sustain at the level following downward pressure coming from weaker rival oils and slower export demand for January.
This, despite palm oil supply expected to remain tight in Q1 2024 on account of seasonally lower production and poor weather in recent months which has affected harvesting work.
Regardless, prices are expected to trade to a high of MYR4,000-4,200 per tonne on the most active CPO futures contract on the BMD in the first three months of 2024, with demand likely to pick up in February ahead of the Muslim Ramadan fasting season in March and Eid festive period in April.
CPO prices are also generally expected to do better in 2024 on average to the previous year’s level of MYR3,796 per tonne ($832 per tonne), largely underpinned by lower-to-stagnant production outlook amidst strong recovery in export demand.
Main factors governing palm prices in 2024, in addition to supply and demand fundamentals, include government policies, resultant effects of El-Nino, biodiesel blend policies, strength of China import demand and E.U policies surrounding RED II or Renewable Energy Directives and EUDR or the European Union Deforestation Free Regulation.
Learn more about how to use agriculture prices in contracts
Malaysia’s CPO production is projected to notch 18.50 to 18.75 million tonnes in 2024, or between a fall of 0.30% to a meagre rise of 1.06% from 18.55 million tonnes posted in 2023.
The second largest producer is expected to reap the results of an increased number of migrant plantation workers in its productivity, after numbers were restricted in 2020-2022 due to Covid-related policies and hangups in government-to-government negotiations.
That is expected to help counter the effects of stagnating yields and declining oil palm planted area, though time will tell of its efficacy.
Meanwhile, the largest palm producer in the world, Indonesia is projected to be largely unchanged at 49 million tonnes in 2024 from the previous year, undermined by adverse weather and slower pace of re-planting.
Another swing factor would be the El Nino effect, which may show up in yields as well after a prolonged period of dryness in key plantation areas during the third quarter of 2023.
However, the effect is unlikely to be as severe as the El Nino event in 2015-2016, which saw production in Malaysia fall by 13% on the year while Indonesia’s output was slightly higher on account of younger, higher-yielding trees.