Executive Summary

A Sharp Climb: Palm Oil Prices Reach 15-Month High Amid Global and Local Shifts

In the first week of August 2025, Crude Palm Oil (CPO) prices surged by 7.4%, climbing to USD 957 per metric ton—the highest point since May 2024. This sharp rally reflects a mix of declining supply, robust demand, and relatively stable macroeconomic conditions, especially across Southeast Asia.

One of the biggest contributors to this price hike is the unexpected drop in Malaysian palm oil stockpiles. While forecasts earlier in the year expected an increase, the reality in July 2025 showed a stockpile decline of around 18%, driven by weaker production output. This decline reignited supply concerns and pushed traders toward aggressive buying in the futures market.

On top of that, the lingering El Niño phenomenon has taken a toll on palm oil production—particularly in Indonesia’s main producing regions of Sumatra and Kalimantan. Known for bringing hot, dry weather, El Niño has reduced yields by stressing oil palm trees. Though recent rainfall slightly softened the impact, overall production remains under pressure, adding another layer of uncertainty to global supply.

At the same time, international demand remains strong—especially from major importers like India and Pakistan. India’s palm oil imports in 2025 have jumped by about 22% year-on-year, thanks to favorable pricing compared to other vegetable oils like soybean oil. The competitive cost has encouraged Indian refiners to ramp up restocking, reinforcing steady buying trends. Similarly, Pakistan’s imports rose 18% YoY, reaching around 2.5 million tons. Even with export duties increasing costs, Pakistan’s reliance on palm oil to meet local edible oil demand makes it a dependable market for producers in Indonesia and Malaysia.

Indonesia’s Strategic Position and Policies Help Balance the Market

Indonesia, the world’s largest palm oil exporter, has benefited from this global momentum. CPO export volumes in July 2025 rose by 12.1% YoY, and in May 2025, export value reached approximately USD 1.85 billion, reflecting monthly increases of over 61% in certain periods. Destinations like India, Pakistan, and China continue to drive growth, signaling strong global consumption.

Supporting this export strength is the relatively stable Indonesian Rupiah, which traded between Rp16,290 and Rp16,490 per USD in early August. Compared to other emerging markets facing currency volatility, Indonesia's steady exchange rate helps shield buyers and exporters from external shocks, maintaining cost efficiency.

Domestically, the B40 biodiesel program—which mandates a 40% palm oil blend in diesel fuel—has become a key demand driver. In Q3 2025, Indonesia’s biodiesel consumption is projected to grow by nearly 10%, absorbing large volumes of CPO for energy needs and reinforcing internal demand despite any fluctuations in the global market.

CPO trading activity also reflects these fundamentals. At PT. Kharisma Pemasaran Bersama Nusantara (KPBN), prices recently climbed to Rp14,689 per kg, mirroring the global benchmark. Meanwhile, the Malaysian derivatives exchange saw CPO futures rise as well, buoyed by bargain buying, firmer palm olein prices, and upbeat export expectations.

To balance domestic support and export competitiveness, the Indonesian government set the official CPO reference price at USD 910.91 per ton for August 2025, with an export duty of USD 74 per ton. This approach helps maintain healthy margins for producers while staying competitive globally.

For downstream industries—from food manufacturers to biodiesel producers—the recent price spike presents both challenges and opportunities. Rising input costs may pressure margins, especially for buyers relying on imports. Meanwhile, tightening supply caused by El Niño and falling Malaysian stockpiles encourages companies to secure longer-term contracts and manage inventory strategically. Still, Indonesia's stable currency may ease the impact for local buyers, offering a modest cushion amid global volatility.

With biodiesel demand growing and weather-related supply risks still in play, palm oil prices may remain firm in the months ahead.