PETALING JAYA: The plantation sector faces softer output in the second quarter of financial year 2026 (2Q26), and while higher industry-average crude palm oil (CPO) prices should offset the impact on earnings, elevated costs continue to weigh on margins for upstream and downstream players.
The Malaysian Palm Oil Board (MPOB) reported lower fresh fruit bunches (FFB) production of 2.4 million tonnes, representing a year-on-year (y-o-y) decline of 9.9% despite a 12.4% rise quarter-on-quarter.
Meanwhile, MPOB’s CPO production eased to 4.8 million tonnes, increasing by 12.9% q-o-q but falling 7.1% y-o-y, aligning with lower FFB receipts.
Despite weaker y-o-y FFB and CPO output, notably from IOI Corp Bhd
and TSH Resources Bhd, MBSB Research said 2Q26 earnings across its coverage should broadly track expectations.
It said that FFB production of companies within its coverage has generally held up better compared to MPOB’s figures, likely as a result of stronger Indonesian output among integrated players.
Nevertheless, it also noted that production in the first half of the year continues to be a concern after a weak start in 1Q26.
It pointed out that TSH saw CPO output decrease by 4.1% y-o-y and 6.7% year-to-date (y-t-d), partially due to a high base and slower estate conditions likely as a result of tree stress in parts of Kalimantan.
In spite of this, the research house said earnings across its coverage should benefit from stronger realised CPO prices, which averaged RM4,519 per tonne during the quarter.
“That said, the upside could be partly offset by lower-than-expected CPO production and sticky production costs,” it said.
It added that upstream margins remain under pressure as fertiliser prices, despite easing, remain above 2Q25 levels, while downstream players continue to face heightened freight and insurance costs amid tensions in the Strait of Hormuz.
The research house said the industry’s cost of production is expected to persist at RM2,500 to RM2,600 per tonne on elevated fertiliser prices unless planters hold off on application.
MBSB Research maintained its 2026 average CPO price assumption of RM4,300 per tonne and kept its “tactical” positive call on the sector, citing emerging Super El Nino supply risks.
RHB Research, meanwhile, has raised its CPO price assumptions for 2027 and 2028 to RM4,500 and RM4,400 per tonne, respectively, on the basis of the high likelihood of a strong El Nino occurrence.
“While experts have yet to determine the strength of the El Nino, we note that most weather models project a very strong event to occur in 2026, with the strongest effects being seen from October onwards,” it said.
It maintained its 2026 CPO price assumption at RM4,400 per tonne, highlighting that CPO prices y-t-d have averaged RM4,366 per tonne and are currently trading at RM4,600 to RM4,700 per tonne.
RHB Research has retained its “overweight” rating on the sector.
