The local palm oil inventory fell to 1.51 million tonnes in February 2025, the lowest level since April 2023 with production in January to February hitting a three year low at 2.42 million tonnes, compared to 2.66 million tonnes in 2024 and 2.63 million tonnes in 2023.

The Malaysian Palm Oil Council said the decline was mainly driven by harvest delays due to heavy rainfall and low yield from the trees following strong production in early 2024. The agency added a recovery in year-over-year production growth is expected from August onwards.

MPOC in its forecast expects March crude palm oil prices to fluctuate between RM4,400 and RM4,600, influenced by increased competition from abundant and competitively priced soybean oil in the global market. It noted high palm oil prices and tight export supplies have impacted consumption in key markets such as India and China, particularly in the first two months of 2025.

On export markets, for the first time, India's palm oil imports from January to February 2025 dropped to just 648,000 tonnes, falling behind soybean oil imports at 727,000 tonnes. Meanwhile, China has been importing only its core palm oil demand, averaging 300,000 tonnes per month in 2024.

Despite weaker demand from traditional markets, palm oil has remained the price leader in the first quarter of 2025, with exports shifting towards emerging markets in Sub-Saharan Africa, driven by its annual population growth of 30 million. This trend is expected to continue throughout 2025, keeping Malaysian palm oil exports strong.

Weak palm oil imports from December 2024 to February 2025 have caused India's vegetable oil inventories to drop sharply. Despite a surge in soybean oil imports over the past three months, India has only partially replaced its palm oil demand. Given this scenario, there is optimism that India will increase palm oil imports in the coming weeks to replenish stocks, which would
support palm oil prices.

In recent years, global vegetable oil consumption growth has been heavily driven by rising biodiesel production. However, this trend is expected to reverse in 2025. Global biodiesel output is forecasted to decline by approximately half a million tonnes, a stark contrast to the annual increases of 3 to 6 million tonnes recorded between 2021 and 2024. Among major biodiesel
producers, Indonesia is expected to be the only country where biodiesel production and consumption will continue to expand, while other regions are likely to experience either stagnation or contraction.

Since the Trump administration took office, U.S. biodiesel and hydrotreated vegetable oil (HVO) production in January 2025 has seen a notable downturn, dropping to its lowest level in 22 months, while imports have nearly come to a halt due to unclear biofuel policies. U.S. Biodiesel and HVO production grew from 10 million tonnes in 2022 to 16 million tonnes in 2024, a 60%
increase over the three years. However, it is unlikely that production will reach 16 million tonnes in 2025 due to evolving political framework.

Given these developments, MPOC believes palm oil prices to trade in rangebound in the coming weeks as market participants speculate on export availability from Malaysia and Indonesia, amid a gradual production recovery from March onwards as the monsoon season concludes.

Additionally, the agency noted that negative growth in vegetable oil consumption for energy purposes means any demand expansion in 2025 will need to come from food and non-energy sectors. This shift in demand dynamics could limit the potential for a price rally in vegetable oils.