SDG: Palm Oil Inventories Reach Six-Year High Amid Moderating Production and Exports

Malaysia’s palm oil industry concluded December 2025 with robust inventory levels, escalating to a six-year high of 3.05 million tonnes. This significant surge, marked by a 7.6% month-on-month and a substantial 78% year-on-year increase, indicates persistent oversupply in the market, even as production moderated and exports picked up during the month.

Production and Export Dynamics

In December 2025, Malaysian crude palm oil (CPO) production experienced a 5.5% month-on-month decline, though it registered a 23% year-on-year increase. Year-to-date (YTD) figures show overall output growth of 4.9% year-on-year. The monthly dip was primarily attributed to reduced output in West Malaysia (-7.9%) and Sarawak (-5.3%), while Sabah recorded a marginal increase. Moving forward, production is expected to continue its moderation as the industry enters a low output season.

Conversely, exports saw an 8.6% month-on-month rise in December 2025, largely driven by a normalized discount between CPO and soybean oil (SBO). CPO was trading at an average discount of USD119 per tonne to SBO and USD173 per tonne to sunflower oil. Despite this monthly surge, YTD exports for 2025 were down 9.5% year-on-year. Analysts anticipate a gradual increase in exports during the first quarter of the new year, buoyed by competitive CPO prices.

High Inventory and Market Absorption Challenges

Despite the combined effect of lower output and higher exports, overall inventory levels swelled, pushing the annualized stock-to-usage ratio to 15.5%, notably above the 15-year historical average of 10%. This suggests the market is struggling to absorb the existing supply effectively. Key importing countries, including China, India, and Pakistan, also reported higher-than-average stock levels as of end-November 2025, with India’s stocks 54% above average and Pakistan’s 56% above average.

While buying activities from these major importing nations improved in November and December 2025, the report highlights a continued preference for Indonesian palm oil, which benefits from a more advantageous tax structure (23% vs. Malaysia’s 10%). This preference is clearly reflected in Indonesia’s YTD-October 2025 export growth of 11.5% year-on-year, contrasting sharply with Malaysia’s 9.5% year-on-year decline for the same period.

Outlook and Risks

The immediate future is expected to see a gradual moderation of stock levels as production continues to ease in the first quarter. However, the digestion of current high inventory levels is projected to take considerable time. The regional plantation sector maintains a Neutral rating, with CPO price assumptions held constant at MYR4,250/tonne for 2026 and MYR4,100/tonne for 2027.

Key downside risks to the outlook include potential trade wars, significant shifts in crude oil prices affecting biodiesel mandates, abnormal weather patterns leading to oversupply or undersupply of vegetable oils, changes in global vegetable oil demand due to economic cycles, worsening labor conditions in Malaysia impacting production, revisions in Indonesia’s tax and trade policies, and increasing ESG scrutiny on listed companies.