PETALING JAYA: Crude palm oil (CPO) prices, while heavily tied to geopolitical outcomes, are likely to remain resilient even in a “forever peace” scenario, benefitting integrated plantation group IOI Corp Bhd
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In a note, RHB Research has maintained a “buy” call on IOI Corp, with a revised target price of RM5.35 a share, up from RM4.85 previously.
It said that assuming the Middle East tensions ease, higher biodiesel mandates remaining in place would result in tighter overall supplies of vegetable oils globally, with stock to usage ratios expected to drop below historical averages.
RHB Research noted the correlation between CPO prices and crude oil prices has moderated to 0.75 times from a high of 0.9 times at the start of the United States/Israel-Iran war.
Subsequently, palm oil-gas oil (Pogo) spread has turned positive again, with CPO trading at a small premium of US$11.70 per barrel.
“At the current Pogo spread, we estimate there will still be enough money in Indonesia’s biodiesel fund to subsidise B50 at current export tax and levy rates,” it said.
The research house said there is also a possibility of discretionary biodiesel demand of three million tonnes per annum returning if the Pogo spread turns negative.
“Assuming our base case scenario that the ceasefire will persist beyond two weeks with no further escalation, we believe CPO prices should settle at RM4,200-RM4,500 per tonne,” it added.
“At these levels, the pogo spread would likely still be relatively thin, meaning increased biodiesel mandates should still be feasible.”
RHB Research also highlighted that the probability of a strong El Nino peaks at 51% for November 2026 to January 2027, which could signal decreased palm oil supply.
The research house has raised its CPO price assumptions from RM4,250 to RM4,400 per tonne for 2026 and RM4,100 to RM4,300 per tonne for 2027.
It has also lifted IOI Corp’s earnings forecasts for the financial years 2026, 2027, and 2028 by 6.4%, 14.5% and 14.5%, after adjusting for the latest in-house foreign exchange assumptions.
