• Higher palm oil for exports as Indonesia caps biodiesel plans
• Strong Indian buying likely to draw down swollen inventories
• China demand weakening as cheaper oils replace palm oil
• Medium-to long-term fundamentals seen supportive, analysts say

KUALA LUMPUR, Feb 11 (Reuters) - Indonesia's move to pause biodiesel expansion and expectations of higher production in the coming months are likely to pressure palm oil prices, although strong demand and slowing growth in overall output could limit the downside, analysts said.

Palm oil output from Southeast Asia, which supplies nearly 90% of the global market, is expected to rise marginally in 2026 on improved weather in top grower Indonesia, even as production in second-largest grower Malaysia is expected to decline, analysts told an industry conference in Kuala Lumpur this week.

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More palm oil supply is likely to flood the global market as Indonesia has shelved plans to mandate 50% biodiesel blending.

Malaysian palm oil futures are expected to trade range-bound between 3,800 and 4,300 ringgit ($968-$1,096) per metric ton from now until July 2026, barring any new weather-related factors, said analyst Dorab Mistry.

"We are today in the leanest period for palm production, and yet, in my opinion, the stock drawdown is not significant," Mistry said.

The benchmark Malaysian palm oil futures fell 35 ringgit, or 0.85%, to 4,060 ringgit a metric ton at close on Wednesday.

"There may be some downward potential in palm oil prices in the short term, in the next one or two months," said Thomas Mielke, executive director of Hamburg-based forecaster Oil World.

"But medium term to longer term, the slowing down of growth, the prospective decline in palm oil stocks, insufficient growth in Indonesian production... should be supportive," Mielke added.

Global edible oil consumption in the 2025/2026 season is expected to grow by 7.1 million tons, with production seen expanding 5.3 million tons, Mielke said.

Palm oil production in Indonesia is estimated at 48.8 million tons in 2026, while output in Malaysia is seen at 19.7 million tons, he added.

STRONG DEMAND GROWTH & LOWER OUTPUT GROWTH

Higher Indian buying and slowing growth in production could support prices, analysts said.

India, the world's biggest edible oil importer, is likely to buy more palm oil this year, drawing down inventories that had risen to multi-month highs in Malaysia.

Indian demand for palm oil is set to rebound this year as prices decline, although competition from Chinese soyoil, an alternative cooking oil, will cap growth, analysts added.

However, China's demand for palm oil is expected to further decline in 2026 as the country shifts to cheaper canola and soybean alternatives, palm oil traders and analysts told the conference on Monday.

"In China, the outlook for 2026 is dampened by expanded domestic soybean crushing capacity, ample availability of alternative vegetable oils, and continued price-based substitution away from palm oil," said Izzana Salleh, secretary general of Council of Palm Oil Producing Countries (CPOPC).

Indonesian authorities' seizures of palm plantations are also likely to take a toll on output due to lower fertiliser application and lack of upkeep, palm oil analysts said.

Indonesia's crackdown on the palm oil industry, launched last year and led by a task force consisting of the military, the police and state prosecutors, resulted in the seizure of around 4.1 million hectares, affecting major palm oil companies as well as smallholder farmers. According to authorities, these were operating illegally in forest areas.

"If we look at the numbers, we see that imports of fertiliser are being reduced by close to 20%. So this is an indication that at several places, fertiliser applications are being reduced ... And this will have an impact on the yields and on the production," Mielke said.

The enforcement campaign is set to expand further this year, with the government looking to seize an additional 4 million to 5 million hectares (12 million acres) of palm plantations.

Indonesian crude palm oil output is expected to grow 2% to 3% this year, after rising 8% to 51.98 million metric tons in 2025, according to the Indonesian palm oil producers' association GAPKI.

https://www.reuters.com/business/energy/indonesia-biodiesel-pause-rising-output-seen-limiting-palm-oil-gains-2026-02-11/