CIMB Research is maintaining its CPO price forecast of RM4,000 per tonne for this year.
PETALING JAYA: Indonesia’s decision this week to put on hold its B50 biodiesel mandate, while keeping it at the B40 blending level this year, could lead to weaker demand for crude palm oil (CPO), thus affecting the price of the commodity moving forward, analysts say.
The rationale for maintaining B40 biodiesel, a blend of 40% palm oil and 60% diesel this year, with B50 being kept as a contingency for the second half of the financial year 2026 (2H26), was due to current elevated CPO prices and a wide crude oil-CPO spread, which raised subsidy costs.
CIMB Research said the development is a negative for CPO prices, as the market had been anticipating Indonesia’s implementation of B50, a blend of 50% palm oil and 50% diesel, as a key demand-side catalyst.
“We estimate that B50 could lift Indonesia’s palm oil demand by up to about three million tonnes.
“While the delay in the B50 implementation is not a major surprise, this reinforces our earlier concerns around the elevated CPO-gasoil price spread, with CPO futures trading at a US$370 per tonne premium over Brent gas oil.
“Up from around US$300 per tonne between October and November last year.
“The wider spread has increased the fiscal burden of biodiesel subsidies, reinforcing the Indonesian government’s cautious stance on moving beyond B40.”
The Indonesian government has signalled possible plans to raise palm oil export levies in the near term.
This would negatively affect palm oil producers with exposure to Indonesian estates amid rising palm oil stockpiles in key producing countries, as higher levies are likely to pressure domestic CPO prices.
This negative backdrop is further compounded by Indonesian President Prabowo Subianto’s recent statement.
He said that Indonesia may seize an additional four million to five million ha of palm oil plantations this year.
Accordng to the research house, this move heightens policy and ownership uncertainty for palm oil players with material exposure to Indonesia.
Earlier this year, Prabowo said the seizures would be made against plantations accused of operating illegally in forest areas.
If carried out, the seizures would affect major palm oil companies and smallholder farmers alike.
Additionally, CIMB Research is keeping an “overweight” call on the plantation sector, while maintaining its CPO price forecast of RM4,000 per tonne for this year.
An analyst said earnings in the upstream segment should remain resilient, though upside is limited.
“Downstream conditions remain challenging despite stronger-than-expected results in the third quarter of last year, typically the strongest quarter for demand and revenue, with margins surprising on the upside,” the analyst added.
“That said, regional refining overcapacity persists, and oleochemical demand is likely to remain weak against a backdrop of slowing global growth.”
Meanwhile, RHB Research maintained a “neutral” call on the sector, but has put its CPO price assumption of RM4,250 per tonne for this year under review based on the change in Indonesia’s biodiesel policy.
“We will wait and see what the levy changes are, and monitor further news on this before making the necessary changes to our price assumptions,” it added.
Downside risks have been heightened with the negative developments for CPO prices, the research house said, adding that it may likely need to review its supply and demand estimates.
The research house noted that its current estimates assumed about two million tonnes of CPO would have been used for B50 in 2H26.
“We highlight that quotas issued for biodiesel this year also reflect this development, with the allocation for this year set at 15.65 million kilolitres (kL), which is marginally higher than the target of 15.62 million kL for last year,” RHB Research said.
“Of the 15.65 million kL, approximately 7.45 million or 48% will need to be subsidised by the Indonesian plantation fund.”
On the potential new levy rates by Indonesia, it said, based on the current palm oil to gasoil spread of US$382 per tonne, the estimated levy on refined oils would need to increase to at least 13.3% from 7.5% currently in order to fund B50 for the full year.
The research house said its top picks in the sector for Malaysia include Johor Plantations Group Bhd
, Sarawak Oil Palms Bhd, IOI Corp Bhd and SD Guthrie Bhd.
