THE EMERGENCE of El Niño is once again drawing attention to the outlook for crude palm oil (CPO), with analysts warning that a strong weather event could tighten supply and push prices higher.
While uncertainty remains over the severity of the phenomenon, historical trends suggest significant implications for palm oil yields, market prices and regional producers in the years ahead.
The US National Oceanic and Atmospheric Administration (NOAA) has officially declared the onset of an El Niño event, although its eventual intensity remains uncertain.
Despite ongoing geopolitical tensions, RHB Research expects crude palm oil prices to stay well-supported at current levels.
The research house also sees room for further price appreciation if weather conditions point to a particularly strong El Niño cycle.
According to NOAA, El Niño conditions have emerged and are likely to strengthen in the coming months, with forecasts suggesting the phenomenon could reach moderate to strong levels.
Current projections indicate that the likelihood of a strong El Niño will peak at 88% between November 2026 and January 2027.
A severe El Niño event would likely weigh on palm oil production, as prolonged dry weather can reduce yields and disrupt crop development.
The effects are often long-lasting and, depending on the intensity of the event, may continue to be felt for up to two years.
Historical trends show that meaningful declines in CPO productivity have generally occurred only during stronger El Niño episodes, making the eventual strength of the current weather pattern a key factor for the industry to watch.
“We highlight that the Australian Bureau of Meteorology has yet to declare a confirmed El Nino,” said RHB.
Historically, El Nino usually results in a yield drop of between 2% and 20%.
RHB notes that during the two strong El Nino episodes in 1997-1998 and 2015- 2016: there was a 17% decline in yield in 1998-1999 and a 14% decline in yield in 2016-2017, in other words, a one-year lagged impact.
As for CPO prices, average CPO prices rose by as much as 21% during the El Nino years and by an additional average of 26% one year after El Nino.
“As such, while we are keeping to our CPO price forecasts for now,” said RHB.
RHB Research sees potential upside to its crude palm oil (CPO) price forecasts of RM4,400 per tonne for 2026 and RM4,300 per tonne for 2027, subject to confirmation of the intensity of the anticipated El Niño phenomenon.
The research house noted that a stronger El Niño event could provide additional support for palm oil prices, particularly in 2027.
Historically, CPO prices tend to strengthen in the year following an El Niño episode rather than decline, especially when weather disruptions are severe.
Another factor that could bolster prices is Indonesia’s planned natural resources export governance framework, which seeks to centralise export transactions through Danantara Sumberdaya Indonesia.
Although Indonesian authorities are reportedly considering adjustments to the programme, stricter oversight of export activities is still expected.
The framework will introduce a standardised pricing mechanism for exports and enhance monitoring efforts to address concerns over under-invoicing and transfer-pricing practices.
Under the proposed rules, which are scheduled to take effect by Dec 31, 2026, exporters will be required to submit monthly disclosures covering product categories, shipment volumes, export values and tariff classifications.
Export proceeds must also be retained within Indonesian state-owned banks.
RHB expects exporters may accelerate shipments ahead of the implementation deadline to avoid potential administrative bottlenecks during the transition period.
However, once the framework is fully enforced, export processing could become less efficient, potentially slowing shipments from Indonesia. Such disruptions may tighten global supply and lend further support to CPO prices.
“We also could see Indonesian planters facing higher costs related to this extra monitoring, but CPO prices could also rise to offset this,” said RHB.
RHB stock calls are under review as share prices of regional planters have corrected significantly of late from regulatory changes in Indonesia.—June 15, 2026
Main image: The Asean Magazine
