PETALING JAYA: The current elevated crude palm oil (CPO) prices will be sustained through the second half of financial year 2026 (2H26), supported by tightening supply conditions and resilient demand, says Hong Leong Investment Bank (HLIB) Research.
In a note to clients, the research house raised its average CPO price assumptions by RM100 per tonne to RM4,450 per tonne for 2026 and RM4,300 per tonne for 2027, respectively.
This reflects the heightened possibility of the El Nino phenomenon and implementation of the B50 biodiesel mandate in Indonesia.
“We will incorporate the higher CPO price assumptions into our earnings forecasts and target prices in the upcoming results season.
“Based on our estimates, every RM100 per tonne increase in our average CPO price projection would lift earnings of plantation companies under our coverage by 3% to 8%,” HLIB Research noted.
The research house, which maintained an “overweight” stance on the sector, said it continues to favour planters with predominantly upstream operations and greater exposure to operations in Malaysia, given the higher earnings leverage to sustained CPO price strength and lower exposure to foreign regulatory and policy risks.
HLIB Research’s top “buy” picks are SD Guthrie Bhd
with a target price of RM7.05 and Hap Seng Plantations Holdings Bhd at RM2.89 per share.
Meanwhile, an analyst with a bank-backed brokerage said the supply side catalysts for CPO prices include the potential risk El Nino poses to palm oil output and the residual disruption to shipping through the Strait of Hormuz, which could continue to affect fertiliser availability and freight costs.
While El Nino’s effect on palm oil production typically lags – often emerging 12 to 24 months after the event as moisture stress affects fresh fruit bunch yields – CPO prices tend to respond much earlier.
This reflects the market’s forward- looking nature, particularly if it evolves into a strong and prolonged event that results in material rainfall deficits across key production regions in Indonesia and Malaysia.
As for the demand-side catalyst, the analyst expects the B50 biodiesel mandate implementation to lift palm oil demand.
Furthermore, Indonesia’s planned implementation of the B50 biodiesel mandate from July 1, 2026, is expected to provide a meaningful incremental demand outlet for palm oil.
A higher biodiesel blend increases the volume of palm-based biodiesel required for domestic diesel consumption, thereby absorbing a large portion of Indonesia’s palm oil production.
The impact could be meaningful, given the size of Indonesia’s domestic diesel market.
If implementation proceeds broadly as planned, the B50 could reduce the volume of palm oil available for export and tighten the global supply-demand balance.
Another demand-side catalyst is the wide CPO price discount to soybean oil that should lend support to CPO prices.
At the time of writing, the CPO price is at a US$440 per tonne discount to soybean oil (vis-a-vis historical three- and five-year averages of US$190 per tonne and US$250 per tonne).
“Such a wide discount should continue to encourage substitution towards palm oil among major vegetable oil importers, providing an important buffer despite elevated absolute CPO prices,” the analyst noted.
