Kuala lumpur: The upcoming monsoon season in December is expected to help mitigate the potential impact of a Super El Ni±o weather phenomenon on Malaysia's palm oil production, said Malaysian Palm Oil Council (MPOC) chief executive officer Belvinder Sron. She noted that the impact of El Ni±o on palm oil output is typically felt after a time lag of nine to 12 months.
According to BERNAMA News Agency, the previous Super El Ni±o occurred in 2015, leading to a 13% reduction in Malaysia's palm oil production, equivalent to 2.6 million tonnes, in the following year. In 2026, the dry weather conditions developed later in the year compared to 2015. Therefore, the rainfall patterns between September and November will be critical in determining the severity of the dry conditions and the extent of El Ni±o's impact on Malaysia's palm oil production in 2027.
Belvinder highlighted that the impact of El Ni±o across Southeast Asia has been uneven in 2026. In Indonesia, particularly in Sumatra and Kalimantan, weather conditions have turned drier since late June, while Malaysia has not yet experienced critical dryness, though temperatures have been rising. In the short term, the drier weather could improve harvesting efficiency and the transportation of fresh fruit bunches (FFB) to mills by enhancing field access and reducing flooding disruptions.
However, the greater risk lies in prolonged dryness lasting more than three consecutive months. Lower rainfall, higher temperatures, and declining soil moisture could stress oil palm trees, eventually reducing FFB production and oil yields after a time lag of nine to 12 months. Lower FFB availability, combined with stable demand, would lead to a decline in palm oil inventories and tighten overall supply.
Regarding crude palm oil (CPO) prices, Belvinder noted that CPO futures on Bursa Malaysia Derivatives had risen above RM4,900 per tonne by mid-August, while 2027 forward contracts were trading above RM5,000 per tonne, reflecting growing market concerns over the potential impact of El Ni±o. She pointed out that the current bullish momentum in palm oil prices extends beyond El Ni±o, with geopolitical tensions also providing support to the broader vegetable oil market.
Disruptions to shipping in the Red Sea and reduced traffic through the Strait of Hormuz have kept crude oil prices elevated above US$80 per barrel. The timing of these supply concerns, ahead of India's Diwali restocking season, is providing additional support to the vegetable oil market, including palm oil. Furthermore, Indonesia's palm oil demand for B50 biodiesel blending could strengthen further as the three-month transition period to clear the remaining B40 biodiesel stocks ends in September.
According to Belvinder, strong domestic biodiesel demand in Indonesia, combined with uncertainty over palm oil production dynamics in 2027, has heightened market concerns over export availability next year. Against this backdrop, palm oil prices are projected to remain above RM4,600 per tonne in September, with the possibility of staying above this level through the rest of the year. Malaysian palm oil production typically peaks in September or October before entering a seasonal downtrend in the fourth quarter.
On Aug 18, Malaysian Meteorological Department director-general, Dr. Mohd Hisham Mohd Anip, informed BERNAMA that the likelihood of El Ni±o reaching the 'very strong' or 'Super El Ni±o' category between October and December has risen to more than 90%.