PETALING JAYA: The crude palm oil (CPO) price outlook for 2026 and 2027 is increasingly shaped by the onset of a strong to very strong El Nino event, which is expected to peak between October this year and January 2027.
RHB Research has maintained its CPO price assumptions of RM4,400 per tonne for 2026 and RM4,300 for 2027, though it noted a significant upside risk for 2027 due to the delayed impact from the weather phenomenon.
“CPO prices are expected to remain supportive, with an upside bias towards the year-end when the El Nino effect starts to be seen,” the research house stated in a report.
The US National Oceanic Atmospheric Administration and the Australian Bureau of Meteorology stated that observations reveal a 97% chance of a strong/very strong El Nino occurring between October and December.
Historically, El Nino-induced dryness leads to a 10% to 14% decline in fresh fruit bunch yields during the first year, with a further 3% to 4% drop in subsequent years if the drought persists.
The Malaysian Palm Oil Board (MPOB) anticipates that this current El Nino episode will mirror the severe event experienced by the industry in 1997/1998 (which lasted for about a year), potentially resulting in a 2% to 4% year-on-year decline in Malaysia’s total output for 2026 starting in the fourth quarter of the year when the impact is expected to be felt first.
The research house said acreages expected to be impacted the most will be in Negri Sembilan, Johor, Pahang and Sabah.
RHB Research added that CPO price is also increasingly policy-driven, rather than purely dictated by traditional supply and demand conditions.
Indonesia’s B50 biodiesel mandate, effective from July, is expected to consume 18 million tonnes of CPO annually – representing over 35% of Indonesia’s total production – thereby significantly tightening global availability of CPO.
The MPOB forecast the average 2026 CPO price to remain between RM4,300 to 4,500 per tonne and is unlikely to drop below the RM4,000 support level in the short term.
According to the RHB Research report, the MPOB believes that the current CPO price has already factored in the B50 policy impact and a strong El Nino, with forward price setting to be driven by the full impact on production levels, which historic patterns show will manifest with a 12-month lag.
Hence, a secondary price spike could occur in 2027 as weak production impacts the demand supply fundamentals in a bullish way.
As a result, RHB Research has maintained an “overweight” call on the plantation sector and recommended companies with high sensitivity to CPO price movements and robust production profiles.
Its top picks with a “buy” call are SD Guthrie Bhd
with target price (TP) of RM7 a share, Johor Plantations Group Bhd (TP: RM1.90), Sarawak Oil Palms Bhd (TP: RM5.20), IOI Corp Bhd (TP: RM5.05), Kuala Lumpur Kepong Bhd (TP: RM23) and Hap Seng Plantations Holdings Bhd (TP: RM2.60).
Despite the positive outlook for CPO, RHB Research warned of downside risks such as unexpected changes in crude oil prices, which could alter biodiesel mandates, or a sudden improvement in the Malaysian labour situation that might boost production unexpectedly.
