EU Demand Slump Puts Early-Season Pressure on Global Palm Oil Prices
Sharp EU import declines are weighing on palm oil prices despite firm biodiesel demand and El Niño risks. Key drivers, risks and short-term outlook in EUR.
Prices
EU palm oil imports fell by about 31% year on year in the opening weeks of the 2026/27 marketing year, which began on 1 July. This contraction in buying has already put visible downward pressure on spot palm oil prices and contributed to a more bearish tone in nearby futures.
Externally, weaker global demand signals are also reflected in Indonesia’s July 2026 crude palm oil (CPO) reference price, which was cut by 2.78% month on month to around USD 1,000.90/mt, implying roughly EUR 930–950/mt depending on the exchange rate. Together, softer demand and slightly lower reference prices confirm that the market has shifted from the tightness seen in previous years to a more balanced-to-loose short-term environment.
Supply & Demand
The drop in EU palm oil imports is part of a broader decline in European oilseed and vegetable-oil buying. Soybean imports into the EU fell even more steeply, down about 47% year on year by 19 July 2026. That suggests subdued demand from crushers, feed manufacturers and other industrial users, who appear to be relying on existing stocks and delaying new purchases.
For palm oil, the EU’s lower buying is driven in part by the Renewable Energy Directive, which restricts the use of certain crop-based biofuels, prompting a structural reduction in demand. The result is increased competition among exporters to place volumes in alternative markets. Indonesia and Malaysia, the dominant suppliers, face the prospect of redirecting more cargoes to Asia, the Middle East and Africa, or offering more attractive pricing to keep EU volumes flowing.
At the same time, domestic policies in producing countries are tightening internal balances. Indonesia’s move to set its July 2026 CPO reference price lower underscores that exporters are reacting to weaker external demand, but local biodiesel mandates (including higher blending targets) are absorbing a growing share of output. This combination keeps overall global supply-demand from becoming excessively loose, even as EU imports retreat.
Fundamentals & Weather
On the supply side, Malaysia’s output has entered its typical seasonal upswing, with June 2026 crude palm oil production rising on a month-on-month basis, though still running below last year amid lingering structural constraints. Exports from Malaysia also improved versus May, but remained slightly below year-ago levels as demand from some key markets, including Europe, softened.
Weather is emerging as a key medium-term risk factor. Forecasts point to El Niño conditions developing from mid-2026, with Indonesian authorities expecting the peak of the dry season between July and September 2026. This pattern typically brings hotter, drier weather to major oil-palm areas in Indonesia and Malaysia, which can curb fresh fruit bunch yields with a lag. Recent industry briefings suggest that, while current stocks remain adequate, El Niño could tighten supply and lend renewed support to prices towards the end of 2026 and into early 2027.
Demand-side fundamentals are more mixed. EU buyers are limiting purchases because of regulatory headwinds and sufficient nearby cover, while Asian demand, particularly for biodiesel, remains structurally strong. Indonesia’s expanded biodiesel programme is expected to consume a substantial share of domestic CPO production annually, effectively setting a floor for prices and reducing the volume available for export in the medium term.
Short-Term Outlook & Trading View
In the very near term, palm oil prices are likely to remain under pressure from the sharp reduction in EU imports and cautious buying by European industrial users. Ample short-term availability, combined with slightly weaker reference prices in Indonesia, argues for a soft to sideways price pattern over the next few weeks.
However, the balance of risks further into the 2026/27 marketing year is skewed to the upside. If El Niño conditions intensify and begin to constrain yields while Indonesian and Malaysian biodiesel mandates continue to absorb large volumes, global exportable surpluses could tighten just as importers outside the EU step up restocking. In that scenario, any additional policy-driven cuts in EU palm oil use may not fully offset upward pressure on international prices.
Strategic Pointers for Market Participants
- Importers in Europe: Use the current demand-driven price softness to secure a portion of Q4 2026 and early-2027 needs, while keeping some flexibility in case El Niño impacts are stronger than expected.
- Asian refiners and biodiesel producers: Monitor EU demand weakness as an opportunity to negotiate more competitive near-term supply contracts, but hedge upside risk linked to potential yield losses later in the season.
- Producers and exporters: Consider diversifying sales channels away from the EU and strengthening positions in price-sensitive markets, as sustained lower European imports may become a structural feature under existing biofuel rules.
3-Day Directional Price Indication (EUR)
- Rotterdam palm oil (CIF, nearby): Slightly softer bias in the next 3 days, reflecting weak EU import demand and recent declines in reference prices (approximate range bias: flat to mildly lower in EUR terms versus last week).
- Malaysia CPO futures (converted to EUR/mt): Range-bound to slightly firm, as local biodiesel demand and weather concerns partly offset international demand softness.
- Indonesia export indications (FOB, EUR/mt): Mild downward pressure in the spot window, with potential for discounting to attract non-EU buyers, but with medium-term support from domestic policy and weather risks.