Palm oil serves as a critical raw material for various industries, including the production of stearic acid, a key component in the manufacturing of numerous chemical products.

The palm oil market continues to experience significant volatility, influenced by regulatory shifts, global trade dynamics, and unpredictable weather conditions. As prices remain elevated, stakeholders must navigate a complex landscape to mitigate risks and capitalize on emerging opportunities.

Current Price Trends

As of now, palm oil prices stand at USD 1,039.64 per metric ton, reflecting a 0.63% increase. Over the past six months, the market has seen sharp fluctuations, with prices peaking above USD 1,200 per metric ton in late 2024 before gradually declining. Despite this recent downturn, prices remain historically high compared to previous years.

Factors Driving Price Movements

1. Regulatory Changes in Indonesia

Indonesia, the world’s largest palm oil producer, has introduced stricter regulations on plantation permits to support smallholder farmers. While this policy benefits local growers, it may limit the production capacity of large-scale manufacturers, leading to supply constraints and upward price pressure.

2. China’s Trade Policies and Shifting Demand

China’s potential retaliatory tariffs on U.S. energy goods, particularly LNG, have spurred interest in biodiesel alternatives, including palm oil. This increased demand has created a supportive environment for higher palm oil prices in global markets.

3. Weather-Related Supply Disruptions

Adverse weather conditions in Malaysia, a key palm oil producer, have disrupted harvest cycles for three consecutive months through December 2024. Lower inventory levels have further tightened the market, limiting supply and pushing prices higher.

4. Changing Import Trends in India

India, one of the world’s largest consumers of palm oil, has significantly cut imports due to the availability of cheaper alternatives like soybean oil. In January 2025, India’s palm oil imports plummeted by 46% month-over-month, reaching a 14-year low of 272,000 tonnes. This shift in demand could moderate price increases over time.

5. Biodiesel Mandates and Their Impact

Indonesia’s plan to increase the biodiesel blend rate to 40% (B40) in 2025 is expected to absorb an additional 1.2 to 1.7 million metric tonnes of crude palm oil (CPO), reducing the volume available for export. This policy is likely to boost Malaysian palm oil exports while maintaining elevated price levels in the global market.

Market Forecast and Expectations

According to a recent Reuters poll, palm oil prices are projected to average 4,350 ringgit (approximately USD 972.07) per metric ton in 2025, marking a 5.4% increase compared to 2024.

• Indonesia’s production is expected to rise by 1.9% to 49.8 million tonnes, while
• Malaysia’s output is forecasted to grow modestly by 0.83% to 19.5 million tonnes, the highest level since 2019.

However, growth in Malaysian production will likely be constrained by persistent weather challenges, labor shortages, and low replanting rates. Additionally, rising supplies of South American soybean oil, available at discounted prices, could cap further price increases for palm oil by providing an alternative to major buyers.

Impact on Stearic Acid Prices

As a key derivative of palm oil, stearic acid prices are highly sensitive to fluctuations in palm oil costs. With supply constraints and increased demand for biodiesel production, the cost of palm oil-based derivatives, including stearic acid, is likely to trend upward in the near term. Businesses reliant on stearic acid should anticipate potential price increases and adjust sourcing strategies accordingly.

Strategic Recommendations

Given the intricate market landscape, companies reliant on palm oil and its derivatives should consider the following strategies:

• Closely monitor regulatory changes and market trends to anticipate price shifts.
• Diversify feedstock sources by exploring alternative raw materials to mitigate cost risks.
• Establish long-term supply agreements to ensure pricing stability amid ongoing uncertainties.
• Optimize procurement strategies to balance costs and maintain supply chain resilience.

Conclusion

The palm oil market is navigating a period of volatility driven by regulatory changes, global trade dynamics, adverse weather, and shifting demand patterns. While production is expected to rise slightly, supply constraints and increased biodiesel consumption are likely to sustain elevated price levels throughout 2025. Businesses should adopt proactive sourcing strategies to mitigate risks and secure stable supply chains in this evolving market environment.