Palm oil hits highest since 2024 as biofuels, El Nino cut supply

Palm oil prices reached their highest level in nearly two years, driven by surging biofuel demand and production risks due to the strengthening El Nino weather pattern. Indonesia, the world's largest producer, has implemented its aggressive B50 biofuel mandate, which is expected to increase the crop's use in fuel and reduce exports.

The country, along with Malaysia, is also grappling with a dry spell that has adversely affected farmers. The El Nino phenomenon is notorious for causing droughts throughout Southeast Asia, further dampening the production of this tropical oil. The US agriculture department expects global palm oil reserves to drop to a nine-year low in the 2026-27 season.

Futures in Kuala Lumpur surged as high as 0.7%, reaching RM4,927 a tonne on Thursday, marking the highest intraday level since December 2024. This price jump occurred as other essential crops, such as corn and sugar, are also experiencing price increases, potentially contributing to food inflation. The recent attacks in the Black Sea have further exacerbated the situation by slowing down crop exports from Russia and Ukraine, two significant sunflower oil suppliers.

With buyers seeking alternative vegetable oils to fill the gap, the recent high on Thursday can be considered a "technically a breakout point," according to Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental Ltd. However, several factors could potentially curb prices from continuing their upward trend, including a strengthening ringgit and competitive soybean oil prices.