Crude palm oil futures on Bursa Malaysia have been trading in a narrow RM4,450-4,600 per tonne range for much of July, with the CME USD-settled contract at $1,117/t, slightly down month-on-month. The market is searching for direction as conflicting signals emerge from the two dominant producers: Malaysia is seeing a seasonal production recovery but weaker year-on-year output, while Indonesia is posting double-digit production growth and rapidly accumulating stocks.
Malaysian output rose 8.1% month-on-month in June to 1.639 million tons, the first meaningful increase of the seasonal upcycle. But the number remains about 3% below June 2025, confirming that the Sabah and Sarawak estates are still feeling the effects of the earlier El Nino dry spell and a natural tree resting phase following several years of heavy production. The Malaysian Palm Oil Board (MPOB) data showed end-June stocks at 2.54 million tons, up 4.8% from May and the highest June level in several years, indicating that supply is becoming more comfortable.
Indonesia's data tells a different story. The Indonesian Palm Oil Association (GAPKI) reported January-May 2026 total CPO and palm kernel oil output at 25.0 million metric tons, a 10.7% year-on-year surge. End-May stocks reached 3.04 million tons, reflecting both higher production and a buildup in inventories that has not been seen since 2023. The USDA FAS projects Indonesia's full 2026/27 palm oil production at approximately 48 million tons, up from 46.7 million tons in the prior season.
The stock buildup is important because it undermines the price-support narrative that dominated the first half of 2026. The market has been pricing in tightness from the El Nino hangover and the supply-demand disruption from increased biodiesel mandates. But the actual physical data is showing that production is catching up, particularly in Indonesia.
Demand remains supported by two structural factors. First, Indonesia's aggressive biodiesel mandate program — currently targeting B40 (40% palm-oil based biodiesel blend) — is diverting approximately 14.7-14.9 million tons of palm oil from the export market into domestic fuel consumption. Second, palm oil's persistent discount to soybean oil — currently around $150-200/ton — keeps it competitive for price-sensitive buyers in India, China, and the Middle East.
Export data is mixed. Malaysian June exports were reported at around 1.1 million tons, up modestly month-on-month but below seasonal norms. Indonesia's export volumes have been constrained by the domestic mandate obligations, which limit the volume available for overseas shipment even as production rises. This tension between rising production and mandated domestic absorption is what is keeping the market range-bound.
The outlook for H2 2026 depends on whether the seasonal production peak — which typically runs from July through October — pushes stocks high enough to overwhelm the biodiesel demand buffer. The Malaysian Palm Oil Council (MPOC) expects prices to remain broadly range-bound at RM4,400-4,650/t into August, with a slight downward bias if the production ramp exceeds expectations. The key levels to watch are RM4,400 as support and RM4,650 as resistance.
For procurement teams that buy palm oil or palm-derived products, the current range-bound market offers a rare opportunity to price with precision. The fundamental picture has shifted from tight to comfortable: Malaysian and Indonesian stocks are building, production is recovering, and the market is not pricing in any supply disruption premium. The strategy should be to lock in requirements for August-October at current RM4,450-4,600/t levels. The seasonal production peak July-October typically exerts downward pressure on prices, and with Indonesian stocks already above 3 million tons, there is room for that pressure to push the market toward the lower end of the range. For buyers with flexibility, consider delayed pricing mechanisms that allow you to fix prices in August-September when the production ramp is likely at its maximum. The key risk to watch is Indonesia's biodiesel policy — if the government signals an acceleration to B50, the domestic absorption increase could pull export volumes tighter and push prices back toward RM5,000. The discount to soybean oil remains a competitive advantage for palm oil, but narrowing that spread would reduce palm's attractiveness to the price-sensitive buyers who form its demand base.