Palm oil gains as buyers pivot away from tightening soft-oil supplies

Global palm oil demand is accelerating as buyers pivot away from tightening sunflower and soybean oil supplies, reinforcing palm oil’s role as the key balancing oil and underpinning a firmer price floor into early 2027. Stronger price competitiveness and constrained availability of rival soft oils are driving a marked reallocation of vegetable-oil demand towards palm oil. Exports from Indonesia, Malaysia and Thailand surged to 4.5 million tonnes in September 2026, up 1.2 million tonnes year-on-year, with India and China leading the buying spree. At the same time, logistics-driven sunflower oil shortfalls of up to 2.5 million tonnes threaten global supply, while seasonal slowdown in palm output and looming El Niño-related weather risks set the stage for a tighter balance after the current inventory overhang eases.

Prices & Market Mood

Palm oil prices are drawing support from stronger demand and tightening substitute supplies, even as high inventories cap near-term rallies. Malaysian palm oil futures are trading in the upper band seen in recent weeks, with local analysts expecting crude palm oil values to stay elevated in November before firming further as stocks start to decline towards Q1 2027. Futures along the forward curve have edged higher across 2027 contracts, indicating market expectations of a tighter supply–demand balance as biofuel demand and weather risks materialise.

Supply & Demand Shifts

Global palm oil trade flows are re‑accelerating. In the 2025/26 marketing year (October–September), exports from Indonesia, Malaysia and Thailand reached 45.9 million tonnes, up 2.5 million tonnes (+6%) from the previous season and the highest in three years. India and China have sharply increased purchases: September shipments to each market rose by 300,000 tonnes year-on-year to 950,000 tonnes and 800,000 tonnes respectively, reaching multi‑month highs as buyers capitalised on palm’s price advantage over rival oils.

At the same time, global sunflower oil availability is under acute pressure. Disruptions to Black Sea export logistics may remove 2–2.5 million tonnes of sunflower oil from international trade in 2026/27, forcing crushers in Russia and Ukraine to curb production and limiting exportable surpluses. While alternative origins such as Argentina, Kazakhstan and Bulgaria are expected to increase shipments, capacity and logistics constraints make a full offset unlikely. This tightening in sunflower oil, combined with seasonally lower soybean oil availability in South America during the planting window, is structurally redirecting demand toward palm oil in price‑sensitive markets.

Fundamentals & Inventory Overhang

Palm oil fundamentals are transitioning from an inventory-heavy environment toward a more balanced market. Malaysian data indicate that production peaked around September, with output rising by roughly the mid‑teens percent month-on-month, while October figures point to continued strong exports and elevated stocks. However, both Malaysian and international analysts now expect inventories to start trending lower from November 2026 through early 2027 as seasonal production eases and export demand remains robust.

The recent surge in exports from the three main producers – up 36% year-on-year in September alone – underlines how quickly demand has responded to changing price relationships. For importers, palm oil’s improved competitiveness, coupled with its ample near‑term availability, makes it the natural replacement for missing sunflower oil volumes and reduced soybean oil export offers. This dynamic is already visible in higher-than-expected shipments to Africa, the Middle East, the European Union and key Asian destinations such as the Philippines, Singapore and Vietnam, where refiners seek to contain input costs amid broader food inflation pressures.

Weather & Biofuel Drivers

Weather and biofuel policies are emerging as key upside risks. Seasonal outlooks for Southeast Asia point to below‑normal rainfall and above‑normal temperatures across major oil palm growing regions in late 2026, consistent with an El Niño pattern that is forecast to persist into early 2027. Prolonged dryness could start to affect yields and fresh fruit bunch formation with a lag, tightening supplies later in 2027 even if near‑term production remains adequate.

On the demand side, firm biodiesel mandates, particularly in Indonesia and Malaysia, continue to absorb a growing share of palm oil output. Market commentary suggests that stronger domestic biofuel offtake, together with export recovery, will accelerate stock drawdowns once the seasonal production peak passes. Any additional policy moves – such as higher blending mandates or changes in export tax structures – could quickly amplify price volatility given the already tightening balance and the parallel squeeze in sunflower and soybean oil supplies.

Trading & 3‑Day Outlook

Trading outlook

• Importers in India, China, MENA and Africa should consider front‑loading purchases of palm oil for Q1–Q2 2027 coverage while price competitiveness versus soybean and sunflower oil remains favourable and inventories are still ample.
• Refiners heavily exposed to sunflower oil should diversify feedstock toward palm oil blends, anticipating that up to 2.5 million tonnes of sunflower oil may be absent from export channels this season.
• Producers and origin sellers may look to scale into hedging on rallies but keep some upside exposure given El Niño‑related production risks and robust biofuel demand into 2027.

3‑day directional view (key exchanges)

Overall, palm oil is moving into pole position within the global vegetable oil complex as buyers adjust to a structurally tighter sunflower and soybean oil backdrop. Near‑term price gains may be tempered by existing inventories, but the balance of risks into 2027 now tilts to the upside as weather and policy factors converge on an already tightening market.