Malaysia’s palm oil production is expected to remain steady over the next two to three months as the industry enters its peak harvesting season, according to BIMB Research. Despite emerging dry weather conditions, the research firm does not anticipate a significant impact on output for the second half of the 2026 financial year, citing the industry's natural delay between rainfall reductions and oil palm yields.
Data from the Malaysian Palm Oil Board (MPOB) showed that crude palm oil (CPO) production in July 2026 rose 9.4% from the previous month to 1.79 million tonnes, while inventories increased to 2.63 million tonnes. This production level has been supported by rising biodiesel demand and concerns over the intensifying El Nino weather pattern, which has put upward pressure on CPO prices.
MPOB's average CPO price for the first seven months of 2026 was recorded at RM4,388 per tonne. BIMB Research forecasts prices to remain elevated over the coming quarter, although seasonal production increases and ample Malaysian stockpiles may temper significant short-term gains. Looking ahead to 2027, prices are expected to stay firm as the delayed effects of El Nino could tighten regional palm oil supplies. BIMB Research maintains price forecasts of RM4,400 per tonne for 2026 and RM4,500 per tonne for 2027. However, the firm notes that these projections could be revised upward should global edible oil supply shortages deepen.
On the cost side, higher expenses for fertilisers and logistics pose risks to industry earnings. BIMB Research suggests that early procurement combined with strong CPO prices should mitigate some near-term cost pressures for most companies. Upstream planters with robust balance sheets and improving yields are particularly well-placed to absorb these increases.
The research house showed a preference for upstream-focused plantation companies heading into 2027, given their direct earnings exposure to rising CPO prices amid potential supply constraints. While downstream operations offer diversification benefits, their earnings remain less predictable due to ongoing overcapacity, thin refining margins, and competition, especially from Indonesian producers.
Reviewing the second quarter of 2026, BIMB Research reported a strong sequential rebound in the upstream segment following the seasonal low-crop period. Total fresh fruit bunch production among covered companies rose 13.8% quarter-on-quarter to 5.91 million tonnes. Correspondingly, CPO and palm kernel outputs increased by 15% and 13.7%, respectively. The average realized CPO selling price climbed to RM4,215 per tonne, supporting margins despite elevated costs.
Downstream earnings also improved sequentially in the second quarter, although results varied depending on product lines and regions. Oleochemical demand is expected to remain supported in the near term by supply disruptions in global petrochemical markets, which have enhanced the competitiveness of palm-based alternatives. Nonetheless, commodity refining and kernel-crushing margins are projected to stay narrow due to excess regional capacity, intense competition, and fluctuating feedstock prices.