Flooding in key states of Sabah and Sarawak is expected to significantly reduce Malaysia's palm oil production in February 2026. However, demand from India and rising crude oil prices are supporting prices to remain high.
The Malaysian Palm Oil Association (MPOA) forecasts that the country's palm oil production in February 2026 could fall by 15% to 17% compared to the previous month. The main reason is the prolonged heavy rains over the past four weeks, causing severe flooding in plantations, particularly in low-lying areas of Sabah and Sarawak states.
Natural disasters disrupt supply chains in Sabah and Sarawak.
The two major palm oil-producing states, Sabah and Sarawak, each contributing approximately 22% of the national output, are facing significant challenges from the weather. Rising water levels are not only flooding young palm trees but also damaging transportation infrastructure, directly disrupting the harvesting and transportation of fresh palm kernels.
According to data from the U.S. Climate Prediction Center, rainfall in Sabah has been 150mm above average over the past two weeks, and in Sarawak 100mm. As of February 27, 2026, more than 5,800 people in Sabah had been evacuated. The MPOA noted that, in addition to weather factors, the reduced yield was also due to the low seasonal harvesting cycle and the short working days during the festival.
Import demand from India remains high.
Despite tight supply, Malaysia's exports continue to show positive signs. According to the Malaysian Palm Oil Council (MPOC), exports in January 2026 increased by 11.4% compared to December 2025, reaching 1.48 million tonnes. This is the second-highest monthly export level in the past year, mainly driven by strong demand from India and Egypt.
In the Indian market, the world's largest importer of palm oil, consumption is expected to increase by 800,000 tonnes in 2026 due to its price advantage over soybean and sunflower oils. Actual data shows that India's palm oil imports in January 2026 reached their highest level in four months, while soybean oil imports fell to their lowest level in 11 months.
Palm oil price forecast and influencing factors
The Ministry of Planning and Investment (MPOC) forecasts palm oil prices in March 2026 to remain stable in the range of 4,000 – 4,300 ringgit (equivalent to US$1,012 – US$1,088) per ton. Besides limited domestic supply, the market is also being affected by Indonesian policies. This neighboring country is expected to increase the export tax on crude palm oil from 10% to 12.5% starting March 1st, a move that could reduce palm oil inventories in Southeast Asia.
Furthermore, the more than 25% increase in global crude oil prices, reaching their highest level since mid-2022, has boosted demand for palm oil in the biofuel industry. Palm oil is currently trading at a significant discount compared to diesel, giving it a major competitive advantage. In Indonesia, the government is considering resuming the deployment of the B50 biofuel blend, which is expected to provide further support for palm oil prices in the medium term.
Summary of Malaysian palm oil market data
| Index | January 2026 | Change compared to the previous month |
|---|---|---|
| Output | 1.58 million tons | A decrease of 13.8% |
| Export | 1.48 million tons | An increase of 11.4% |
| Production forecast for February 2026 | But | 15% - 17% discount |
| Price forecast (March 2026) | 4,000 – 4,300 ringgit/ton | Stable |