PETALING JAYA: After a volatile 2025 marked by sharp price swings and shifting trade flows, RHB Research is expecting the palm oil market to enter a more balanced phase this year, albeit one still shaped by geopolitics, biofuel policies and weather risks.
In a recent report on the regional plantation sector, the research house said it expects crude palm oil (CPO) prices to average slightly lower year-on-year (y-o-y) in 2026, as global supply and demand dynamics normalise.
RHB Research, which maintained a “neutral” stance on the sector, noted that while volatility is likely to persist, fundamentals point towards a less tight market compared with recent years.
“Overall, we expect this year to be a more balanced fundamentally,” the research house said, adding that prices are likely to remain volatile “given the ever-changing geopolitical situation”, but should average below last year’s levels
Spot CPO prices have already retreated from last year’s highs, falling nearly 20% from a peak of RM4,920 per tonne last January to around RM3,900 to RM4,000 per tonne recently, weighed down by elevated inventories and weaker export demand.
RHB Research said that the narrowing price spread between CPO and soybean oil in the third quarter of last year made palm oil less competitive, prompting importers to switch to alternative oils.
This was also reflected in trade data, with Malaysia’s palm oil exports being down 10.2% up to last November.
China and India’s palm oil imports fell 16% and 14% y-o-y, respectively, up to last October.
However, the trend did begin to reverse toward the end of the year as CPO prices moderated and regained their usual discount to soybean oil.
Since the middle of last October, the price gap between CPO and soybean oil widened back to more typical levels, helping to revive demand.
RHB Research said that by last November, China’s palm oil imports were only 3% lower y-o-y, while India’s decline narrowed to 5%.
Stock levels in major importing countries have since climbed to “very comfortable positions”, with inventories in China, India, Pakistan and Bangladesh all above historical averages, the research house said.
The research house highlighted four key factors this year that could shape price movements.
On the supportive side, the emergence of a weak La Niña last December could pose risks to soybean output if weather conditions deteriorate in South America.
While planting in Brazil and Argentina has largely progressed smoothly so far, RHB Research also cautioned that the next few weeks would be crucial in determining whether crop output targets can be met.
Another potential upside comes from Indonesia’s biodiesel programme, as the Indonesian government has reiterated its intention to implement the B50 biodiesel mandate this year, although the research house is expecting this to occur only from the second half of the year.
A full-year B50 rollout would consume up to between 17 million and 18 million tonnes of CPO, but under the research house’s base case, a half-year implementation would add around two million tonnes of additional demand.
That said, funding remains a key uncertainty, with RHB Research estimating that to fully fund B50 biodiesel, Indonesia would need to raise its levy on refined palm oil exports to at least 13.2% from the current 7.5%.
Any levy hike, it noted, would typically trigger a reactionary rise in global CPO prices to offset the higher cost burden.
Offsetting these positives are risks linked to soybeans and the biofuel policy in the United States, with the research house flagging uncertainty over whether China will meet its commitments under a China-US soybean agreement, warning that persistently high US soybean inventories could pressure soybean and soybean oil prices, making CPO less competitive.
It also pointed to the possibility that the US Environmental Protection Agency may delay the implementation of tighter biofuel policies, which would ease demand for soybean oil and weigh indirectly on palm oil prices.
Against this backdrop, RHB Research is maintaining its CPO price assumptions of RM4,250 per tonne for this year and RM4,100 per tonne next year, unchanged from previous forecasts.
While the research house said it continues to see selective opportunities in value and situational plays among plantation stocks, it cautioned that any deviation from its base-case assumptions – ranging from weather disruptions to policy shifts – could quickly upset the fragile balance in the global vegetable-oils market this year.
