Vegetable Oil Markets Face Tight Supplies and Rising Prices

In 2024, the global vegetable oil industry, including palm oil, faced significant challenges due to weather-related production uncertainties, leading to tight supplies moving into 2025. These supply constraints supported higher prices, making palm oil less competitive against soybean oil. However, the limited availability of alternative vegetable oils sustained strong demand for palm oil despite rising costs, ultimately reducing global ending stocks.

In 2025, palm oil production is set to enter its low-yielding season in Q1-2025, while strong festive-driven demand such as Ramadan, is expected to support prices. High palm oil prices may prompt a shift to soybean oil, which remains more competitive due to increased production in Brazil and Argentina. Sunflower and rapeseed oil yields are not expected to rise significantly. Meanwhile, geopolitical tensions, trade policy uncertainties, inflation, and global economic conditions will add complexity to commodity markets, contributing to continued volatility in 2025.

Global Palm Oil Expected to Recover in 2025

Malaysia's palm oil production increased by 4.2% to 19.34 million metric tons (mmt) in 2024. However, this gain could not offset Indonesia’s lower output, despite it being the world's largest producer. Indonesia's crude palm oil (CPO) production from Jan-24 to Oct-24 reached 39.96 mmt, down from 41.78 mmt in the same period in 2023. Total annual production is projected at 48 mmt, lower than 50.07 mmt in 2023. Honduras' palm oil production declined by 22% to 0.51 mmt due to adverse weather and bud rot disease, while Papua New Guinea saw a 7.8% drop to 0.71 mmt. These declines contributed to tighter global supplies.

In 2025, palm oil production in Indonesia, Malaysia, Honduras, and Papua New Guinea is projected to grow compared to 2024. However, Indonesia’s production is expected to see only marginal gains due to stagnating yields, aging oil palm trees, and low replanting rates. Weather conditions will remain a key factor, with wet weather from late 2024 continuing into early 2025, influenced by monsoons and a mild La Niña, transitioning to El Niño-Southern Oscillation (ENSO) neutral by Mar-25 and May-25. These uncertainties may impact overall production and yields.

Strong Palm Oil Demand Drives Price Increase and Projected Growth in 2025

Strong demand for palm oil supported the price increase, at an average between USD 820 to USD 1,250 per metric ton (mt) in 2024 due to lower production primarily from Indonesia, particularly in the second half of the year and into 2025. According to Oil World, a leading industry publication providing global analysis, forecasts, and data on vegetable oils, and oilseeds, global consumption of major oils and fats reached 261.55 mmt in 2024, a 3% year-on-year (YoY) rise from 254.04 mmt in 2023. Palm oil remained the most consumed vegetable oil, holding a 30.1% market share, followed by soybean oil at 24.6% and rapeseed oil at 12.2%.

Table 1. Major Palm Oil Exporters and Importers (2022 to 2024)

In 2024, palm oil exports declined by 5.83% YoY to 48.23 mmt. Imports exhibited a similar trend dropping by 8.39% YoY to 47.27 mmt in 2024 due to lower production in Indonesia, reducing export availability. While Malaysia's production increased, it was insufficient to offset declines in Indonesia and Latin America, leading to overall lower trading volumes.

The CPOPC anticipates positive demand for palm oil in 2025, driven by rising domestic demand in Indonesia for biodiesel production, the need to replenish stocks in key importers like China and India, and tight supplies of alternative oils like sunflower oil. While the B40 biodiesel program in Indonesia will increase domestic demand, it is not expected to significantly impact exportable supplies due to the projected production recovery in Indonesia.

The Organization for Economic Cooperation and Development (OECD) Economic Outlook Volume 2024 projects a global gross domestic product (GDP) growth of 3.3% in 2025, slightly up from 3.2% YoY in 2024, with emerging economies in Asia continuing to drive global growth. As a result, palm oil demand is expected to rise, particularly in key import markets in Asia, including the Association of Southeast Asian Nations (ASEAN) countries. Additionally, demand is forecasted to grow in parts of Africa, notably in Egypt, Kenya, and Nigeria.

Key Drivers Shaping Palm Oil Prices and Trade in 2025

Several key drivers are expected to influence the dynamics of palm oil prices and trade in 2025. Climate change will continue to affect the production of vegetable oils, while shifts in import and export policies, including tariff and non-tariff barriers, may alter trade flows. Global vegetable oil supplies and price trends, particularly for major oils, will also play a role, alongside geopolitical tensions that could disrupt markets. Global economic conditions and changes in the United States (US) trade policy will contribute to market volatility. The implementation of global biofuel mandates, fluctuations in CPO, and the rate of replanting old oil palm trees will further shape the palm oil market in 2025.

Oil Palm Industry Outlook for 2025

The oil palm industry is expected to remain resilient and perform better in 2025, driven by favorable prices and strong demand despite ongoing challenges.Growth in demand from key importers, rising prices, and increasing domestic consumption are expected to support the market. However, uncertainties in weather conditions remain a key factor affecting the global vegetable oils market, including palm oil. To address stagnating yields and maintain long-term competitiveness, replanting programs, particularly for smallholders, must be intensified. Boosting productivity and ensuring sustainable palm oil production are critical to meet growing demand and comply with stricter import regulations.