PETALING JAYA: The risk of rising hot weather phenomenon El Nino looks set to keep crude palm oil (CPO) prices elevated amid current geopolitical factors, says Kenanga Research.
El Nino has already been declared by United States-based National Oceanic and Atmospheric Administration and the likelihood of a very strong phenomenon this time has risen to 63%.
Hence, palm oil supply may be affected in 2027, which gives limited room to accommodate poor harvests of other oil crops, Kenanga Research said in its updated sector report yesterday.
In the past, a very strong El Nino could dampen global palm oil production by 2% to 5% year-on-year.
However, CPO prices can strengthen even with a moderate level of El Nino.
The research house said: “On June 12, we raised average CPO price expectations, from RM4,250 per tonne to RM4,400 per tonne in 2026 and from RM4,200 per tonne to RM4,450 for 2027.”
Essentially, instead of CPO prices moderating in second half of 2026 (2H26) after a strong 2Q26, Kenanga Research said it now expects CPO prices to stay elevated in 2H26 and peak around 1H27 on the back of a very strong El Nino hitting South-East Asia in the latter half of this calendar year.
Other factors supporting CPO prices moving forward include the still tight global edible oil supply despite a better-than-expected opening inventory for 2026, rising demand for biodiesel mix spurred by the Gulf conflict, and rising costs due to higher fertiliser and transport costs.
Palm kernel prices are still elevated, while fertiliser prices have slipped with many planters already locked in stocks for their entire 2026 requirements.
Kenanga Research, which is “overweight” on the plantation sector, said: “We believe the sector’s valuations are still not demanding considering the defensive demand for edible oil and asset-rich balance sheets, with palm oil prices staying elevated or rising higher.”
It also noted that the planters’ valuations remain attractive.
