RHB Research has downgraded the plantation sector to “neutral” from “overweight” previously. — Bloomberg
PETALING JAYA: Crude palm oil (CPO) prices are expected to remain volatile amid the ever-changing geopolitical situation.
Fundamentally, however, global supply and demand will likely be more balanced in 2026 as supply improves.
Meanwhile, demand should pick up given the more attractive relative prices, according to RHB Research.
In a report, the research firm said “we have revised downward our CPO price assumptions to RM4,100 per tonne (from RM4,300) for 2025 and RM4,000 per tonne for 2026 and 2027 (from RM4,100 earlier).
“We believe that demand for palm oil will remain supportive in 2026, while supply will improve, barring any unforeseen weather issues.
“This means that prices for CPO will likely not vary too greatly in 2026 from the 2025 levels,” it added.
The spot CPO prices have moderated from RM4,600 to RM4,800 per tonne in the first quarter of 2025 (1Q25) to a low of RM3,780 per tonne in May, only to bounce back to the current levels of RM3,900 to RM4,100 per tonne.
“The downward movement was mainly driven by geopolitics in light of the United States’ trade tariffs, wars and crude oil prices falling – all of which pushed CPO prices in the same direction,” the brokerage firm pointed out.
RHB Research also said the correlation between CPO prices and crude oil prices surged to 0.47 in April 2025 from minus 0.6 in 1Q25.
It subsequently rose further to the current levels of 0.68 due to raised geopolitical risks.
Besides following crude oil price trends, CPO prices also followed the lead of soybean oil prices, which rose due to the recent US biofuel policy change, leading to a rise in blending targets.
While the supply of 17 oils and fats is expected to improve year-on-year in 2026, RHB Research said the stock-to-usage ratio is still expected to remain below the historical average of 13.6%.
“This leaves very little cushion in case of any short-term bullish supply or demand surprises, hence raising the risk of price volatility going forward,” it added.
Ignoring the noises from geopolitics, RHB Research also expects 2026 to see muted soybean prices, due to continued strong supply in 2026, CPO prices continuing to trade at a discount to soybean oil in the medium term as well as return in demand from price-sensitive countries such as India, Pakistan and Bangladesh.
The brokerage firm has downgraded the plantation sector to “neutral” from “overweight” previously.
All in, RHB Research has downgraded two stocks to a “neutral” call, namely, Kuala Lumpur Kepong Bhd
and Bumitama Agri Ltd, post-earnings revision.
The brokerage firm said it now has six “buy” and seven “neutral” calls with “our buys now mixed with a focus on value plays and situational plays”.
Its top pick value players are Johor Plantations Group Bhd, Sarawak Oil Palms Bhd, IOI Corp Bhd and Perusahaan Perkebunan London Sumatra Indonesia Tbk PT, while situational players include SD Guthrie Bhd and First Resources Ltd.
