Malaysia’s palm oil inventories fell to their lowest level in nearly two years at the end of February 2025, driven by a drop in production despite reduced exports. According to data released by the Malaysian Palm Oil Board (MPOB), stocks declined by 4.31% from January, reaching 1.51 million metric tons, marking the fifth consecutive monthly drop.
The Malaysian palm oil industry faced significant challenges in February, as evidenced by a notable decline in key metrics. Crude palm oil production experienced a 4.16% month-on-month decrease, falling to 1.19 million tons. This reduction was primarily attributed to seasonal factors, including the monsoon season and fewer harvesting days due to public holidays. Although the output slightly exceeded market expectations of 1.16 million tons, it was insufficient to counterbalance the declining stock levels.
Compounding the supply constraints, palm oil exports saw a substantial drop of 16.27% from January, totaling 1 million tons. This figure fell short of analysts’ predictions of 1.05 million tons, indicating a weaker-than-anticipated demand for Malaysian palm oil. Additionally, imports remained low at 66,784 tons, continuing a trend of reduced reliance on external supplies observed in recent months. These factors collectively contributed to the overall decline in the Malaysian palm oil sector during February.
The palm oil industry is facing significant challenges that are expected to impact production and inventory levels in the near future. Many oil palm plantations in Malaysia and Indonesia are aging, with trees approaching the end of their productive lifespan. Replanting efforts have been slow, falling short of government targets due to high costs and the long waiting period for new trees to become productive. This situation is compounded by labor shortages in the sector. While emerging producers like Colombia and Nigeria are increasing their output, their contributions are not sufficient to meet the growing global demand, especially for biodiesel production. Additionally, policy changes in Indonesia, such as the push for higher biodiesel blending rates, are likely to consume much of the country’s increased palm oil production in 2025, potentially leading to tighter inventories in both Malaysia and Indonesia.
Malaysian palm oil stocks are declining amidst notable changes in global edible oil markets. Palm oil prices are expected to face downward pressure in the first half of 2025 due to increased supply during peak production months, though strong biodiesel demand and lower stock levels could bolster prices later in the year. Additionally, palm oil’s competitiveness has been affected by its recent premium pricing over soybean oil, an uncommon occurrence. Analysts predict this price gap will narrow as soybean oil prices stabilize, potentially improving palm oil’s position in global markets.
Despite the current challenges, Malaysia remains a key player in the global palm oil market. However, sustaining its position will require addressing long-term issues such as aging plantations and labor shortages. Additionally, policies aimed at boosting replanting rates and improving yields will be critical for ensuring sustainable growth. For now, tight inventories and fluctuating demand dynamics suggest continued volatility in palm oil markets through 2025.
