Palm Oil Prices Under Pressure as Demand Slows, Alternatives Rise by Amit Gupta, Kedia Advisory
Palm oil prices are expected to decline as production recovers and demand weakens. In 2024, palm oil futures surged 20% due to supply disruptions in Indonesia and Malaysia, but inventories are now set to rise as buyers shift to cheaper alternatives like soybean and sunflower oils. India’s palm oil imports could drop to a five-year low, further pressuring prices. Meanwhile, Indonesia is increasing its biodiesel production, reducing exportable palm oil supplies. Despite this, rising output in Indonesia and Malaysia is expected to keep prices under check in the coming months.
Key Highlights
* Palm oil prices expected to decline as supply recovers.
* India’s palm oil imports may hit a five-year low in 2024/25.
* Palm oil’s premium over soybean oil is narrowing rapidly.
* Indonesia and Malaysia's production is set to rise in 2025.
* Indonesia's growing biodiesel mandate will cut exportable supply.
Palm oil prices, which surged 20% in 2024, are now facing downward pressure as supply concerns ease and demand weakens. Palm oil’s premium over other edible oils has been shrinking, with its price advantage over soybean oil in India dropping from $100 to $50 per metric ton within a month. Benchmark palm oil futures are projected to trade between 3,600 and 4,100 ringgit per metric ton from April to November, reflecting easing market conditions.
Supply-side recovery is a major factor in the price correction. Analysts predict Indonesia’s crude palm oil production will rise to 50 million metric tons in 2025, up from 48.16 million metric tons last year, while Malaysia’s output is also set to increase slightly to 19.5 million metric tons. This supply boost could lead to a stock buildup, especially as demand slows.
India, the world’s largest palm oil importer, is expected to cut its purchases to 7.5 million metric tons in 2024/25, the lowest level in five years, as buyers increasingly opt for cheaper alternatives like soybean and sunflower oils. This shift in demand is another key factor driving price weakness in the market.
Meanwhile, Indonesia is ramping up its biodiesel production under the B40 mandate, which will reduce palm oil exports by 7.3% in 2025. While this move supports domestic consumption, it will likely not be enough to prevent overall price declines caused by rising production and weak global demand.
Finally
With increasing production and slowing demand, palm oil prices are likely to face downward pressure in 2025. However, Indonesia’s biodiesel expansion could provide some support by limiting exportable supply.
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