Is 2026 a Year of Rebalancing for Tropical Oils?

In early February 2026, discussions at the American Cleaning Institute (ACI) meeting in Orlando reflected a generally cautious industry mood. One week later, at the Palm Oil Conference (POC) in Kuala Lumpur, views were more mixed. While ongoing weakness in oleochemicals demand was a common theme, several participants noted potential demand upside due to new natural fatty acid and alcohol capacity coming onstream. At full utilization, this new capacity could require several hundred thousand metric tons of additional tropical oil feedstock.

Overall, the oleochemicals industry continues to navigate a challenging environment: low margins, subdued downstream demand, competition from synthetic feedstocks, ongoing capacity expansion, evolving geopolitical and trade dynamics, including renewed uncertainty around energy markets, trade flows, and tariffs.

Meanwhile, we continue to see elevated prices for tropical oils – approximately twice historical averages - which continues to influence industry economics.

Palm oil (PO): Global palm oil production in 2025 exceeded earlier expectations, increasing by approximately 3 million metric tons (around 4%). More favorable weather conditions with ample rain, improved fertilization and replanting cycles, and increased labor availability were cited as key contributors. As a result, inventory levels entering 2026 are generally assessed as healthy.

Palm Kernel Oil (PKO): PKO availability typically follows palm oil production trends, as kernels are a byproduct of palm fruit harvesting. Demand in Indonesia, in particular, continues to be supported by new domestic oleochemical capacity. In parallel, logistical constraints — such as truck weight restrictions in Malaysia — have contributed to short-term supply friction for palm-based products, including PKO.

At the moment, PKO supply remains relatively tight due to the seasonal low-production period, which should continue through May or June. Higher output is anticipated as harvesting may improve into mid-year.

Coconut Oil (CNO): Coconut oil production declined nearly 10% (about 200,000 metric tons) in 2025 compared with 2024. Improved rainfall patterns and limited typhoon damage are expected to support a meaningful recovery in 2026, with production forecasted to rise by over 15% (roughly 300 thousand metric tons). The Philippines has also paused increasing CNO use in biodiesel which remains at B3. Palm olein imports into the Philippines have increasingly replaced coconut oil (CNO) as a primary cooking oil, primarily due to palm olein's cost advantage over CNO.

Soft oils: Production of major soft oils, including soybean, rapeseed, and sunflower oils, is projected to remain robust in 2026. Notably, both North and South America are expected to reach record levels of soybean production. This increase in soybean oil supply is significant, as soybean oil directly competes with palm oil in both food and biodiesel sectors.

This increased availability may help moderate price volatility across the broader vegetable oil complex, though outcomes will depend on policy decisions and how demand evolves across the market.

Meeting future demand growth across food, oleochemicals, and biofuels will require continued investment in feedstock availability. This includes sustained investments in replanting and fertilization, supporting smallholders to enhance their livelihoods and good agricultural practices, and achieving higher yields through new crop development and innovative strategies.

Encouragingly, ongoing research is focused on improving the sustainability and efficiency of good agricultural practices for existing oil crops, alongside investment in alternative feedstock sources. These include oils derived from novel seed varieties, insects, microbes and continued advances in fermentation technologies. Together, these initiatives are expected to play an important role in supporting long-term sector growth, managing costs, and meeting evolving consumer requirements.

At the same time, the past months have reinforced how quickly external factors can influence markets. This underlines the importance of resilient feedstock strategies, diversified sourcing, and long-term investment approaches that can withstand periods of volatility and uncertainty.

At P&G Chemicals, we remain committed to responsible sourcing of our tropical oils, particularly in times when market and geopolitical uncertainty place additional pressure on supply chains.

Smallholder farmers play a critical role in global supply, and supporting their productivity and resilience is essential for the long-term health of the sector. Through initiatives like our P&G Centre for Sustainable Smallowners (CSS) in Johor, Malaysia, we continue to identify practical, scalable approaches that can lead to higher yields and income potential while also promoting sustainable agricultural practices. By sharing learnings with industry partners and stakeholders through events like Roundtable on Sustainable Palm Oil (RSPO), our CSS team hopes to inspire others, diffuse learnings across borders and contribute to a robust and resilient inclusive sector in the future. Learn more by watching this video.

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