CPO Declines This Week, El Nino Threat in Malaysia Remains a Buffer

Jakarta, CNBC Indonesia - Crude palm oil (CPO) prices corrected again at the end of the week. Based on Refinitiv data, the benchmark CPO contract closed at 4,475 Malaysian ringgit per tonne on Thursday (12/6/2026), down 1.67% from the previous day. On a weekly basis, CPO prices weakened 2.7% from the position of 4,601 ringgit per tonne on 4 June. The correction occurred after the market faced pressure from the weakening of global crude oil prices and competing vegetable oils in the global market. Brent crude oil prices fell this week to their lowest level in more than three months. This condition reduced the appeal of vegetable oils as raw materials for biodiesel. At the same time, soybean oil prices on the Chicago Board of Trade and palm oil prices in Dalian also moved weaker, limiting the room for CPO to rise. From the demand side, Malaysian export shipment data was actually still quite good. Cargo surveyors estimated Malaysian palm oil exports during 1-10 June rose around 3.5%-4.9% compared to the same period the previous month. However, the market is paying more attention to future supply developments. Market participants’ attention is currently focused on weather risks in Southeast Asia. The Malaysian government has warned that the El Nino phenomenon, which began developing this month, has the potential to cut agricultural commodity yields by 8%-10% this year. Rainfall in several regions is even estimated to drop by up to 40%-60%. This warning received significant attention because Malaysia is the world’s second-largest palm oil producer after Indonesia. The experience of the 2015-2016 El Nino remains a benchmark for the market. At that time, temperatures exceeded 37 degrees Celsius and Malaysian palm oil production fell by up to 18%. The Malaysian government has prepared mitigation measures through round-the-clock weather monitoring and cloud seeding operations. Nevertheless, commodity markets generally respond faster than actual on-the-ground production. The risk of reduced harvests is being factored in now because the impact of dry weather usually only becomes visible several months after the El Nino phenomenon takes hold. On the other hand, industry data showed Malaysian palm oil stocks rose for the second consecutive month in May. This condition explains why prices have not yet responded aggressively to the El Nino threat. Current supply is still relatively adequate, so the market is not yet facing short-term shortage concerns. For now, CPO prices are moving between two forces. The weakening of energy prices and competing vegetable oils is putting pressure from the demand side, while the El Nino threat opens up the risk of production decline in one of the world’s largest supplier countries. Weather developments in the coming months will be the factor most closely watched by market participants.