PETALING JAYA: Crude palm oil prices (CPO) have surged to RM4,500 per tonne, driven by positive demand from the United States and Indonesia’s biofuel policy expansion.
This has prompted UOB Kay Hian (UOBKH) Research to upgrade the plantation sector to “overweight” from “market weight”.
In a report, the research firm said that in the United States, the finalisation of the Renewable Fuel Standard Set 2 Rule is projected to raise biomass-based diesel volumes to 5.61 billion gallons in 2026 and 5.86 billion gallons in 2027.
“With current soyoil prices having rallied sharply in the policy development’s lead-up – now trading at US$0.67 to US$0.68 per lb or approximately US$1,500 per tonne – this is expected to provide strong price support for CPO over the next two years,” it noted.
As for Indonesia, its B50 biodiesel mandate is being fast-tracked and is set to start on July 1, 2026, following the recent surge in global diesel prices amid Middle East tensions.
“The move would raise the country’s mandated palm-based biodiesel blend from the current B40 (40%) to B50 (50%), which is expected to absorb an additional three to four tonnes of CPO feedstock per year going forward,” UOBKH Research explained.
The research house noted that despite cost headwinds from higher fuel and fertiliser prices, higher CPO prices will help offset these, especially as spot prices climbed from RM4,000 per tonne to RM4,700 per tonne over the past month.
“Although fuel and fertiliser costs – which historically accounted for 30% to 40% of planters’ CPO production costs – have also surged following the Middle East’s conflict escalation in the past month, local planters under our coverage are expected to be insulated by the brunt of the impact in the near term,” it said.
The reasons for this include companies already securing their short-term fertiliser requirements. “Companies such as SD Guthrie Bhd
have locked in fertiliser prices and supply for 2026.
“All in all, the rise in CPO prices should more than offset the rise in operating expenditure (opex) and drive a net positive impact to planters’ earnings over 2026 to 2027, in our view,” UOBKH Research said.
The research house has raised its CPO price assumptions to RM4,500 per tonne for 2026, and RM4,400 per tonne for 2027, from RM4,300 per tonne previously.
“In tandem with our CPO forecast upgrade, we revised up our sector coverage’s 2026 earnings by 4% to 17%, whereby we have also incorporated higher opex mainly arising from increased fertiliser costs over 2026 as well as 2027,” it said.
On companies, UOBKH Research said it likes SD Guthrie as a liquid big-cap proxy for CPO prices, as well as its pivot towards renewable energy and industrial park development.
The brokerage also highlighted Hap Seng Plantations Holdings Bhd for its inexpensive valuations and still-attractive dividend yield of 5.5%.
“On the other hand, we also like Kuala Lumpur Kepong Bhd as a laggard pick, with its downstream business expected to record a progressive earnings recovery.”
UOBKH Research said there could still be further upside to CPO prices despite the latest upgrades.
“This may be balanced out by fertiliser prices potentially overshooting relative to our current expectations – where we see average costs for planters under our coverage rising by mid- to high-single digits for 2026 and in the mid-teens for 2027,” the brokerage said.
It added that another key risk is the likelihood of El Nino, which has historically had a negative impact on planters’ forward production.
