Palm Oil Market: Higher Pakistani Output, But Import Reliance Keeps Prices Key

Palm oil prices remain supported but volatile as global futures consolidate below recent highs while Pakistan’s domestic vegetable oil production increases without meaningfully reducing its heavy reliance on imported palm oil.

Pakistan’s oilseed and vegetable oil output is rising sharply, led by rapeseed and mustard, yet local supply still covers only a small share of consumption. This leaves Pakistan highly exposed to global palm oil price swings driven by Southeast Asian weather, biodiesel mandates and changing stocks. For now, a somewhat firmer but rangebound price environment is likely, with modest downside risk short term if Malaysian output data surprise on the upside, but structural support from strong South Asian demand.

Prices

Malaysian crude palm oil (CPO) futures on Bursa Malaysia are trading in a consolidating range after a recent two-week slide, with contracts edging down around 0.4–0.6% across 2026–27 and retreating from earlier highs. A stronger performance in competing vegetable oils such as soybean oil has at times lent intraday support, but rising stock concerns and cautious sentiment ahead of upcoming supply-and-demand data cap the upside.

Indonesia recently cut its July 2026 CPO reference price to about USD 1,000.9 per tonne, signalling some easing in export parity levels. At a EUR/USD rate near 1.08, this implies an indicative CPO reference level around EUR 930–950 per tonne FOB. Spot and nearby futures are trading somewhat above this floor but remain in the lower half of the Malaysian Palm Oil Council’s indicated July range, suggesting a moderately firm yet not overheated market.

Supply & Demand

Pakistan’s domestic vegetable oil production in MY 2025/26 surged by about 30% to 550,000 tonnes from 474,000 tonnes, driven mainly by better yields and a shift into oilseeds such as rapeseed and mustard. Rapeseed/mustard area rose from 1.05 to 1.21 million acres and seed output jumped from 469,000 to 614,000 tonnes, lifting oil output from 178,000 to 233,000 tonnes. Sunflower and canola also expanded, while cottonseed – still the largest local oil source at 216,000 tonnes – has seen its share drop to roughly 40% due to reduced cotton sowing.

Despite this improvement, Pakistan still sources nearly 90% of its vegetable oil from imports, underscoring the persistent structural deficit between domestic supply and rising consumption. Recent trade data show palm oil continuing to dominate Pakistan’s edible oil import mix and recording strong value growth in FY26, confirming that local gains have not replaced imported palm oil volumes. Government policy is expected to keep incentivising rapeseed, mustard, sunflower and canola, but without much faster growth in oilseed area and yields, import needs will remain high.

Fundamentals & External Drivers

On the supply side, Malaysia’s palm oil sector faces an increasingly tight balance as El Niño-linked dryness threatens to trim yields just as the country ramps up to a B15 biodiesel mandate, increasing domestic industrial demand. This combination limits surplus export availability and supports prices, even as short-term futures soften on expectations of higher near-term production and temporarily weaker exports. Indonesia’s lower reference price slightly eases export costs but primarily reflects already cooler international values rather than a fundamental oversupply.

For Pakistan, strong population growth, urbanisation and a preference for affordable edible oils keep demand for palm-based products robust. Structural currency weakness and higher international palm oil prices over the past year have contributed to domestic food inflation pressures, with official data highlighting a sharp rise in global palm oil benchmarks through early 2026. While rising local oilseed output provides some medium-term cushion, the country’s large and growing import bill for palm oil – close to EUR 1.8–2.0 billion equivalent in recent half-year periods – leaves it vulnerable to renewed price spikes.

Weather & Short-Term Outlook

Weather in key Southeast Asian palm regions remains a central risk. Forecasts indicate lingering El Niño effects with pockets of below-normal rainfall in parts of Malaysia and Indonesia, which could curb fresh fruit bunch yields into late 2026 if dryness persists. However, in the very near term, markets are focused on the upcoming Malaysian Palm Oil Board (MPOB) report on July 10, with expectations of higher June output and uncertain export performance that could temporarily weigh on prices if stocks build faster than anticipated.

In Pakistan, domestic weather has been broadly supportive for winter oilseeds, contributing to the reported yield gains in rapeseed and mustard. Looking ahead, any adverse monsoon deviations that disrupt cotton, sunflower or canola plantings could indirectly increase dependence on imported palm oil even further. Given present conditions, though, no immediate weather shock is visible that would abruptly cut Pakistan’s domestic vegetable oil output.

Trading & Risk Management Outlook

• Importers in Pakistan: Use current consolidation in CPO futures and Indonesia’s lower reference price to lock in a portion of Q3–Q4 2026 needs, while staggering purchases around the MPOB report to capture potential short-lived dips if stocks surprise higher.
• Refiners and industrial users: Hedge a base volume via Bursa Malaysia or OTC swaps near the lower half of the current range, but keep some exposure open given ongoing El Niño and biodiesel-related upside risks into 2027.
• Producers and exporters: Consider incremental forward selling on rallies back toward the upper end of the MPOC range, balancing attractive margins against the possibility of weather-driven tightening later in the season.

3‑Day Directional Price Indications (EUR)

• Malaysia CPO nearby futures: Slight downside to sideways bias (≈ 990–1,030 EUR/t) as traders await the July 10 MPOB report.
• SE Asia CPO FOB reference: Stable around 930–950 EUR/t, tracking Indonesia’s July reference level with limited room for further near-term declines.
• Pakistan CIF refined palm products: Mildly softer landed costs in EUR terms if futures drift lower, but largely offset by FX volatility and freight; local wholesale prices likely to remain firm in domestic currency.