Palm Oil Prices Under Pressure: Production Surge and Demand Concerns Weigh on Markets

The global palm oil market faces mounting headwinds as rising production expectations clash with uneven demand dynamics, particularly in key importers like China. Recent data underscores a precarious balance between oversupply risks and structural demand drivers, with prices hovering near two-year lows.

Production Outlook: Growth vs. Oversupply Fears

Malaysia’s palm oil production surged by 9% month-on-month in early April 2025, fueled by favorable weather and improved yields. Analysts warn, however, that further production gains could flood the market, applying downward pressure on prices. The Council of Palm Oil Producing Countries (CPOPC) forecasts global output to reach 80.34 million metric tons in 2024–25, a 0.6% increase from the prior year. While Indonesia’s output is expected to grow modestly, its B40 biodiesel mandate—diverting an additional 2 million metric tons to domestic fuel—remains critical to limiting export surpluses.

Yet risks persist. A sustained Malaysian production rebound could push prices to a projected two-year low of RM3,500/ton ($826) by late 2025, as seen in futures markets.

Demand Dynamics: India’s Strength vs. China’s Stagnation

India has emerged as a key driver of palm oil demand, with March imports surging 14% month-on-month to 424,000 metric tons, driven by palm oil’s $50/ton discount over soybean oil. Analysts project India’s annual imports to hit 9.4 million metric tons in 2024–25, capitalizing on price competitiveness and seasonal restocking needs.

In contrast, China’s palm oil demand remains subdued. Buyers have opted for minimal restocking due to ample domestic supplies and weak industrial activity, acting as a “dampener on bullish price trends”. While traders speculate a potential pickup in May–June, the scale of recovery remains uncertain. This divergence highlights the uneven demand landscape, with India’s momentum offsetting China’s caution.

Key Risks and Uncertainties

1. Malaysian Production Oversupply: A steep production spike could overwhelm markets. Current forecasts assume stability around RM3,900/ton, but traders must monitor harvest data closely.
2. Indonesian Policy Compliance: The B40 mandate’s success hinges on strict enforcement. Any slippage would ease domestic demand, increasing export volumes and depressing prices.
3. Weather and Geopolitical Volatility: While neutral weather conditions in Q2 support yields, potential El Niño risks in 2027 loom. Geopolitical tensions—such as U.S. soybean supply bottlenecks—add uncertainty to competing oils’ pricing.

Conclusion: A Delicate Balancing Act

Palm oil prices face a precarious outlook in 2025, caught between rising production and uneven demand. While India’s robust imports and biodiesel policies in Indonesia provide some support, the specter of oversupply and China’s weak demand threatens further declines. Analysts project prices to stabilize near RM3,900/ton through Q2 if Malaysian output avoids excessive growth and India maintains momentum. However, the risk of a price drop to RM3,500/ton—as warned by industry analyst Dorab Mistry—cannot be ignored.

Investors should weigh these factors carefully. Short-term opportunities may arise from current lows, but long-term resilience hinges on sustainable production practices, policy adherence, and demand recovery in key markets. As the market navigates these crosscurrents, vigilance toward production data and geopolitical developments will be critical to informed decision-making.