PETALING JAYA: Plantation plays on Bursa Malaysia move deeper into bull market territory, as analysts foresee palm stockpiles to correct sharply over the next few months.
The expectation of stronger crude palm oil (CPO) prices ahead helped to lift the Plantation Index by 2% yesterday. Since last year’s trough in April, the index has moved up by more than 26%.
UOB Kay Hian (UOBKH) Research sees limited downside to CPO prices moving into the first quarter of this year (1Q26), with inventory levels reverting towards mean.
It expects prices to stabilise at the present RM4,000 per tonne in the immediate term, given that inventory levels have likely peaked and should moderate in the coming months when palm production enters the low seasonal period.
“Furthermore, the Southern Peninsula Palm Oil Millers’ Association has estimated that early fruit yields in January last year declined significantly by 35% month-on-month (m-o-m); this may suggest that the production trend in certain regions have begun to regress to the mean, relative to previous months’ outlier figures.
“At the same time, consumption demand is anticipated to be robust in 1Q26, supported by two major festivities around the same period this year – Chinese New Year in February as well as Hari Raya in March.
“Given these, we believe the supply-demand situation may tighten in 1Q26 and lead to an accelerated correction in palm oil inventories,” the research house said.
A survey last month reported an 8% m-o-m export decline, while UOBKH Research’s production survey separately indicated a 2% to 6% m-o-m decline in output, implying roughly 25% year-on-year growth versus December 2024.
This is consistent with certain planters’ views on a delayed production peak this cycle, the research house said.
It also pointed out that CPO prices have stayed competitive against other vegetable oils despite the strengthening of the ringgit.
Currently, it is trading at a US$150 per tonne discount to soybean oil. This should continue to help palm oil regain its market share, compared with early last year when CPO’s stiff price premiums led to a significant decline in purchases from key buyers such as India and China.
“We believe CPO prices would be well-supported at the current level of RM4,000 per tonne and may gradually pick up over 1Q26 in tandem with a progressive correction in palm oil inventory levels.
“Overall, we continue to forecast a higher average CPO price of RM4,400 per tonne for this year versus RM4,300 last year, which, alongside continued fresh fruit bunch production growth, is expected to translate into high single-digit sector earnings growth for this year,” UOBKH Research said.
