Global commodity markets are witnessing a significant uptick, with Crude Palm Oil (CPO) and Newcastle coal prices demonstrating notable strength. This surge, driven primarily by tightening supply concerns and escalating demand exacerbated by the El Niño phenomenon, signals a challenging landscape for global supply chains. CPO prices recently touched an intraday high of MYR5,022/ton before settling at MYR4,902/ton, while Newcastle coal climbed approximately +0.5% to US$151/ton, reflecting a sustained rally over the past month with CPO up +5.1% MoM and coal gaining +8.2% MoM.

CPO Supply Under Pressure: El Niño’s Looming Threat to Palm Oil Production

The specter of a prolonged and intense El Niño casts a long shadow over Southeast Asia’s vital palm oil industry. The ASEAN Specialized Meteorological Centre (ASMC) forecasts below-normal rainfall and elevated temperatures across much of the region until November 2026. Such arid conditions are a direct threat to palm oil productivity, potentially crippling yields in key producing nations.

Indonesian producers are already bracing for impact. The Indonesian Palm Oil Association (GAPKI) projects a significant ~5% decline in Indonesia’s CPO production by 2027, a stark illustration of El Niño’s anticipated severe consequences. This forecast underscores the vulnerability of agricultural output to extreme weather patterns.

Across the straits, Malaysian producers are similarly vigilant. Mohammad Jaaffar, Director of the Malaysian Palm Oil Association (MPOA), confirmed that Malaysian CPO producers are actively preparing for an extended dry season. While immediate disruptions have yet to materialize, Jaaffar cautions that the full extent of the impact on productivity could emerge as early as 2027 if current conditions persist or worsen over the next one to two months. This proactive stance highlights the industry’s deep concern and the potential for delayed, yet substantial, production setbacks.

Coal’s Resurgence: China’s Stockpiling Drives Demand Amid Indonesian Supply Disruptions

In the energy sector, coal is experiencing a notable surge, propelled by a confluence of geopolitical tensions and El Niño-induced supply-demand imbalances.

China’s Strategic Stockpiling Amid Energy Shifts

The ongoing energy disruptions in the Middle East, compounded by the dry conditions brought by El Niño, have spurred China to embark on aggressive coal stockpiling. This strategic move, reported by sources like Nikkei Asia, aims to preemptively address an anticipated surge in electricity demand and potential reductions in hydropower output during the drier summer months. China’s actions send a clear signal of global energy insecurity, effectively pulling forward future demand and tightening the spot market.

Indonesian Supply Bottlenecks Worsen

El Niño’s influence extends to critical supply routes, particularly in Indonesia, a pivotal global coal exporter. Argus Media reports a significant disruption in coal transportation along Central Kalimantan’s Barito River, where dangerously low water levels are creating a logistical bottleneck. This natural impediment compounds existing challenges, including delays in approving additional RKAB (Mining Business Plan and Budget) production quotas for 2026, which have already constrained output for some producers since early this year.

The uncertainty surrounding Indonesian coal supply has injected considerable apprehension into the market. Argus Media further notes a palpable reluctance among Central Kalimantan coal producers to negotiate long-term contracts for 2027, underscoring anxieties about future production capacity and delivery reliability.

Ardhi Ishak Koesen, Head of Industry Relations and Associations at the Indonesian Mining Experts Association (Perhapi), offers a cautious ray of hope. He predicts the Barito River will recover by November 2026 with the return of the rainy season. Koesen also reassures that current supply disruptions from Central Kalimantan are unlikely to impact domestic coal supply for power plants, given the region’s relatively smaller output compared to major hubs like South or East Kalimantan. Nevertheless, the interplay of climate phenomena and regulatory hurdles continues to shape the volatile trajectory of global commodity prices.