The latest developments in palm oil markets show a balancing act between rising supply and soaring demand—especially driven by biofuel mandates. In 2026, prices are projected to soften slightly from 2025 highs, yet domestic biodiesel consumption in Indonesia and regional demand from India and China will likely underpin market stability. Let’s dive in.

Rising Supplies vs. Strong Demand

Palm oil futures for third-month delivery on Malaysia’s benchmark exchange are expected to average around MR4,200 per metric ton in 2026—a mild decline from the MR4,236 average seen in 2025 . This suggests a modest easing in price pressure despite continued demand. Favorable weather, improving yields, and normalization of global production are easing supply constraints .

That said, Indonesia and Malaysia combined still produce about 85% of global supply . Indonesia’s production is forecast to increase notably in 2025, and Malaysia is poised for a strong year too . But early 2026 may face headwinds; land seizures and regulatory initiatives in Indonesia could unsettle output from 2 to 5 million tonnes of crude palm oil .

Biodiesel Mandates Anchor Demand

Indonesia’s biodiesel policy is a key demand anchor. The country’s B40 mandate (40% biodiesel) already diverts a significant share of CPO for domestic use. A full B50 rollout in 2026 could siphon off around 41% of its output—roughly 21 million tonnes . However, policy timelines are uncertain; some sources say B50 may not fully launch until late in the year .

These mandates give palm oil structural demand advantages. As Dr. Benjamin Hook from Global Data noted, “Palm oil remains a structural winner over the next 5–10 years” because of the convergence between food needs and energy policy .

Global Market Drivers: India, China, and Seasonal Patterns

India is set to boost palm oil imports to 8.7 million metric tons in the 2025–26 marketing year—up sharply from 7.8 million the previous year . China, too, is raising demand, with imports expected to grow from 4.6 to 5 million tonnes, buoyed by Lunar New Year consumption .

On top of ongoing trends, seasonal peaks during Ramadan and Chinese New Year traditionally lift buying . Plus, limits on soybean oil supply—due to higher mandates from India, Brazil, and the U.S.—further reinforce palm’s relevance .

Feedstocks and Price Pressures

Palm oil derivatives—like PFAD (palm fatty acid distillate) and stearin—tend to mirror crude palm oil price shifts . FAO data shows the Vegetable Oil Price Index hit a multi-year peak in October 2025, thanks in part to strong biofuel-linked demand .

Supply constraints in used cooking oil (UCO) and POME (palm oil mill effluent) are also impacting prices. Indonesia’s restrictions on exports of these by-products have reduced global availability, while Europe’s tightening regulations inject more uncertainty .

Geopolitical and Policy Crosswinds

Biofuel policies outside of Southeast Asia play a role, too. In the U.S., rising blending mandates boost feedstock demand across vegetable oils—pushing up prices indirectly for palm oil . That said, recent decreases in crude oil prices (around $55/barrel in December 2025) could cap biodiesel’s cost-competitiveness and temper price rallies .

Meanwhile, Indonesia’s crackdown on illicit palm oil and waste exports caused short-term oversupply—but also prompted domestic absorption via higher biodiesel blending, balancing markets again .

Indonesia’s Exceptional Export Performance

Indonesia saw a remarkable surge in CPO exports in December 2025: export volume doubled month-over-month to around 2.75 million tonnes, earning nearly $2.79 billion. On a full-year basis, 2025 exports hit $24.42 billion—up nearly 22% from 2024 . That impressive export growth underscores how Indonesia remains pivotal in global supply—even amid domestic demand shifts.

Currency and Regulatory Shifts

The weakening of the Malaysian ringgit has made exports more competitive for major buyers like India and China . Meanwhile, Europe’s regulation against deforestation now applies to palm oil, requiring due diligence on land origins . That raises cost and sourcing complexity for exporters eyeing that market.

Outlook for 2026

• Price trajectory: Slight dip projected—around MR4,200/mt—but range-bound pressure persists between MR4,000–4,300 .
• Supply dynamics: Strong output in 2025, with future risk from land disputes and replanting gaps into 2026 .
• Demand side: Steady to rising via biodiesel policy, especially from Indonesia and India; festive and seasonal highs reinforce consumption .
• Policy uncertainties: Key questions remain on B50 timeline, export regulations, and EU deforestation rules .
• Geopolitics: Energy prices and U.S. biofuel mandates continue to influence global feedstock costs .

“Palm oil remains a structural winner over the next 5–10 years,” says Dr. Benjamin Hook of Global Data—highlighting the commodity’s dual role in food and energy uses .

Conclusion

In short, palm oil markets in 2026 are defined by a delicate equilibrium. Abundant supply from Indonesia and Malaysia may gently pull prices lower than 2025 peaks—but demand supported by biodiesel mandates, resilient import markets in India and China, and regulatory dynamics keep the floor firm. Policy clarity—such as the B50 timeline or EU regulations—could tilt the market, so stakeholders should stay alert. In practice, the year ahead likely means stable, somewhat range-bound prices with pockets of volatility around policy announcements and seasonal demand swings.

FAQs

Q: Will palm oil prices in 2026 be lower than in 2025?
Yes, most forecasts expect a slight dip from the MR4,236 average in 2025 to around MR4,200 in 2026, reflecting broader supply normalization .

Q: What’s driving demand for palm oil right now?
Indonesia’s biodiesel mandates (B40 moving toward B50) and strong import demand from India and China for food and energy are key drivers .

Q: Could production risks disrupt the market?
Yes, in Indonesia, land title issues and plantation seizures risk up to 5 million tonnes of supply. Malaysia may also see shorter production in early 2026 due to replanting cycles .

Q: How do biofuel policies affect palm oil prices?
Biofuel mandates divert significant domestic supply to fuel, tightening exports. Lower crude oil prices can weaken biodiesel competitiveness, softening palm demand .

Q: What’s the impact of EU sustainability rules?
Stricter reporting and deforestation checks raise cost and compliance burden for palm oil entering European markets .

Q: Is palm oil still a viable long-term commodity?
Yes. Its unique dual role in food and biofuel, combined with policy support, makes it a “structural winner” over the next decade .