Why Palm Kernel Oil Prices Reflect the State of the Oleochemical Industry

The Oleochemical Industry

Within the bio-based chemicals sector, a central role is played by oleochemistry, namely the branch of the chemical industry that uses renewable raw materials — vegetable and animal oils and fats — to produce intermediates such as fatty acids, glycerine, esters, and fatty alcohols. These products form the foundation of numerous industrial value chains, including detergents, cosmetics, lubricants, and materials.

Among vegetable oils, palm oil, palm kernel oil, and coconut oil represent the main feedstock base for the global oleochemical industry. However, their roles across end-use markets are not homogeneous. Palm kernel oil stands out for its strong specialization: its use is predominantly directed toward oleochemistry, particularly in the production of surfactants, thanks to its high content of medium-chain fatty acids such as lauric acid. Coconut oil has a similar chemical structure but shows a more balanced distribution of uses across oleochemicals, the food industry, and cosmetics. Palm oil, by contrast, is characterized by a more diversified demand profile, including food, oleochemical, and increasingly energy applications, especially in the form of biofuels.

Insights from Comparing Palm Kernel Oil and Palm Oil Prices

The different distribution of end uses is directly reflected in price dynamics. In particular, the price of palm kernel oil can be considered an indirect indicator of conditions in the oleochemical sector, as it is strongly influenced by industrial demand for chemical derivatives. A commonly used indicator among market participants is the ratio between the price of palm kernel oil (PKO) and that of palm oil (CPO), often referred to as the PKO premium over CPO.
Both oils are co-products derived from the same palm fruit: palm oil is extracted from the pulp (mesocarp), while palm kernel oil is obtained from the seed (kernel). However, production volumes differ significantly, with palm oil largely prevailing. This lower availability, combined with greater use specialization, means that palm kernel oil is structurally priced at a premium.

The ratio between the two prices is not constant but varies over time depending on market conditions. In particular, it tends to widen during periods of strong oleochemical demand or shortages of lauric oils (such as palm kernel and coconut oil), while it may narrow when factors related to the food or biofuel markets prevail, which more strongly affect palm oil prices. As a result, the PKO–CPO spread represents a useful short-term indicator for interpreting the balance between different end uses of vegetable oils and, in particular, the overall health of the oleochemical industry.

The chart below shows the ratio between global PKO and CPO prices, published monthly by the World Bank (World Bank Commodity Price Data (The Pink Sheet)). For comparison purposes, the same index calculated using EU customs prices is also included.

The data analysis highlights the many cycles recorded by this index over the course of the century. In 2025, a new cycle began which, for the global index, reached an all-time high at the end of the year, followed by a slight adjustment in the following months. The European index also experienced a phase of significant growth, although less pronounced than the global trend. However, this growth continued into 2026, leading to a gradual convergence between the two indices.

Impacts on Lauric Acid Prices

The increase in prices of lauric oils — particularly palm kernel oil and coconut oil — led to a significant rise in the price of lauric acid and its derivatives during 2025. This trend appears anomalous when compared to the broader performance of chemical products and can be effectively highlighted by comparing lauric acid prices with an average index of organic acid prices.
The chart below presents the two indices (both set to a base of 100 in January 2022). The chart areas are also color-coded to distinguish periods when lauric acid prices are above or below the organic acids index, making phases of relative outperformance immediately visible.

Comparison of price indices for lauric acid and organic acids

The analysis clearly shows that in 2025 lauric acid prices experienced strong growth, in contrast to the opposite trend observed in the organic acids index, which displayed a slight downward tendency. This behavior is similar to what was already observed in the 2016–2017 period, when lauric acid prices grew significantly more than the average of organic acids.
It is noteworthy that in that phase as well, the stronger increase in lauric acid prices coincided with a widening of the price differential between palm kernel oil (PKO) and palm oil (CPO), confirming the strong link between the lauric acid market and that of lauric oils, particularly palm kernel oil.

Conclusions

The oleochemical industry represents a key component of the bio-based chemical sector and is primarily based on the processing of three vegetable oils: palm oil, palm kernel oil, and coconut oil. Among these, palm kernel oil plays a particularly distinctive role, as most of its production is directed toward oleochemistry. By contrast, coconut oil and, especially, palm oil show a more diversified range of uses, spanning food, energy (biofuels), and chemical applications.

The price dynamics of palm kernel oil, relative to palm oil, provide an indirect indicator of conditions in the oleochemical sector. This indicator, together with lauric acid price trends, helps interpret the cyclical phase of the oleochemical industry and its main downstream sectors, such as detergents and cosmetics.
During 2025, these indicators pointed to a phase of increasing demand, accompanied by significant price pressure. The first months of 2026, however, suggest a gradual easing of these pressures, consistent with a rebalancing between supply and demand in the oleochemical sector.