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Informist, Wednesday, Jul. 9, 2025

 

MUMBAI – Palm oil production in Malaysia is forecast to increase slightly in 2025-26, driven by favourable climatic conditions, according to BMI, a Fitch Solutions company. The total output is seen rising 0.5% to 19.5 million tonnes following an expected decline of 1.6% on year in 2024-25, it said. 

 

Major palm oil-producing states Sarawak, Sabah, Pahang, Johor, and Perak are anticipated to experience normal weather conditions, signalling minimal weather-related disruptions in the upcoming harvest season. Jabatan Meteorologi Malaysia, in its latest report, has forecast normal to slightly below-normal rainfall during Jul-Sept, with a return to normal and above-normal rainfall with the beginning of the northeast monsoon in Oct-Dec.

 

"The US Climate Prediction Center predicts a strong likelihood of ENSO-neutral (El Nino-Southern Oscillation neutral) conditions throughout the second half of 2025 into early 2026, declining to a 48% (chance of El Nino) and a 41% chance of La Nina during November 2025 to January 2026," it said.

 

In terms of consumption, palm oil demand is likely to decline on year by 2.0% to 3.8 million tonnes in 2025-26 as industrial demand eases amid slow progress toward biofuel targets and tighter restrictions on the used cooking oil trade, it said.

 

Malaysia's share in global palm oil production is, however, likely to ease to 23.9% in 2025-26 from 25.2%, BMI said in its forecast. A fall in Malaysia's share in global production could be attributed to merely 2.0% of Malaysia's total planted area for palm oil being replanted in 2024, which is significantly below the country's annual target of 4-5%. Persistently high palm oil prices since 2021 have led farmers to prioritise short-term gains from lower-yielding ageing trees over longer-term replanting, according to the commentary.

 

This trend is likely to reverse slightly in the short term as palm oil prices ease in 2025-26, but the trend is likely to persist over the longer term as prices are expected to remain high and policy support is likely to remain inadequate, according to BMI.

 

To address replanting lags, Malaysia's Budget 2025 allocated an additional 100 million Malaysian ringgit to encourage small holders to replant unproductive and ageing palm trees through grants and soft loans. But there was limited impact, highlighting the need for more effective incentive structures. "In response to Indonesia's tax cuts for palm oil producers, the Malaysian government announced a raise in the windfall profit levy threshold for palm oil to MYR 3,150 in peninsular Malaysia and MYR 3,650 in Sabah and Sarawak, effective November 1, 2024, to bolster its domestic production," BMI said. The market price range structure and export duty rates for crude palm oil were also further revised.

 

Meanwhile, palm oil remaims a closely watched commodity as it is often associated with environmental concerns such as deforestation. But Malaysia and Indonesia have strengthened their monitoring and traceability standards through the Malaysia Sustainable Palm Oil and Indonesia Sustainable Palm Oil certifications and Malaysia has demonstrated significant progress in sustainability compliance, with more than 80% of its domestic production certified for export in 2024, according to BMI.

 

"While Malaysia cannot compete with Indonesia in terms of production scale due to limited land and expansion potential, it has reinforced its reputation as a reliable exporter, especially after Indonesia's 2022 export ban disrupted global supply and underscored Malaysia's consistency in meeting international demand," according to the commentary.  End

 

Reported by Taniva Singha Ry

Edited by Rajeev Pai

 

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