Market attention is shifting to Indonesia's biodiesel policy trajectory and the lingering El Niño, both of which are expected to keep palm oil supply under pressure through 2026 and into 2027. Industry observers in Jakarta and Kuala Lumpur are weighing the impact of these factors on global CPO benchmarks, which have already climbed to near 52-week highs.
El Niño Output Risks
The El Niño episode, with an ONI of +1.4, is seen as a key supply-side constraint. According to a report from Pontianak Post, the Indonesian Palm Oil Association (Gapki) estimates that the current El Niño could cut national production by up to 3 million tonnes. While rainfall across the main belts is broadly normal for now, the lagged effect of dry conditions on fruit yields is a primary concern for the second half of 2026.
Gapki remains optimistic that the B50 biodiesel mandate can proceed despite these output risks. However, Bloomberg Technoz notes that higher crude palm oil prices, driven by the El Niño, could raise the cost of the B50 blend and potentially push up domestic fuel prices. This creates a delicate balance for policymakers between supporting the biodiesel program and managing inflation.
B60 Rollout in 2027
Adding to the policy mix, Indonesia is assessing CPO supply availability for a potential B60 biodiesel rollout in 2027, as reported by ANTARA News. A higher blend would significantly increase domestic palm oil consumption, tightening export availability. Industry analysts suggest that the feasibility of B60 will depend on the pace of production recovery and the government's ability to secure adequate feedstock.
For compliance-minded buyers, the combination of El Niño-related supply losses and rising biodiesel mandates signals a structurally tighter market. A report from ICICI Direct expects palm oil prices to remain elevated, citing tight supply and robust biodiesel demand, with potential margin pressure for fast-moving consumer goods companies that rely on palm oil as a key input.
Market Outlook
Our model outlook sees CPO anchored near $1,152 per tonne (MYR 4,658), close to its 52-week high. While bullish El Niño and policy signals support prices, ample July MPOB stocks and soft seasonal demand in September could temper gains. We expect choppy consolidation with modest upside into the August MPOB release. Missing cargo-survey and Bursa data add to near-term uncertainty. The published path points to a +1.2% gain over the next seven sessions.
With Indonesia's biodiesel ambitions and El Niño risks converging, market participants should brace for sustained supply-side tightness. The next MPOB data release will be crucial in confirming the production trend and shaping price direction.