PETALING JAYA: The palm oil production is expected to remain seasonally firm over the next two to three months as the industry enters its peak-crop period.
BIMB Research, which remains “overweight” on the plantation sector, said emerging dry conditions are unlikely to materially affect the output in the second half of financial year 2026 (2H26), given the normal biological lag between rainfall deficits and oil-palm yields.
However, the risk to regional lower production is increasing for 2027, particularly if the very strong El Nino and below-normal rainfall persist through end-2026.
For the month of July 2026, Malaysian Palm Oil Board (MPOB) data showed that the country’s crude palm oil (CPO) production rose 9.4% month-on-month to 1.79 million and lifted inventories to 2.63 million tonnes.
BIMB Research said higher biodiesel demand and concerns over the strengthening El Nino have supported CPO prices.
The MPOB’s average CPO price for the first seven months of 2026 stood at RM4,388 per tonne.
“We expect prices to remain at current elevated levels over the next three months, although seasonally stronger production and high Malaysian inventories may limit sharp near-term upside.
“Prices should remain firm in 2027 as the lagged impact of El Nino could tighten regional supply.
“We maintain our CPO price forecasts of RM4,400 per tonne for 2026 and RM4,500 per tonne for 2027.”
The research house noted that upside risk to its forecasts could emerge if the regional palm-oil or global edible-oil supply shortfall becomes more pronounced.
On the cost front, BIMB Research said higher fertiliser and logistics expenses remain key earnings risks.
“Earlier procurement and firm CPO prices should partly mitigate the near-term impact for most companies under our coverage, while upstream planters with strong balance sheets and improving crop profiles are better positioned to absorb the cost pressure.”
BIMB Research prefers upstream-focused planters, which offer the clearest earnings leverage to higher CPO prices going into 2027, given the potential supply tightness.
It added that downstream exposure provides diversification, but the earnings uplift remains less predictable amid persistent overcapacity and thin refining margins.
Commenting on the concluded second quarter, BIMB Research said the upstream segment delivered a strong sequential recovery as the industry moved out of the seasonal low-crop period.
Total under coverage fresh fruit bunch production increased 13.8% quarter-on-quarter (q-o-q) to 5.91 million tonnes, while CPO and palm kernel output rose 15% and 13.7% q-o-q.
Average realised CPO average selling price increased to RM4,215 per tonne. Higher volumes and prices supported margins mitigating higher costs.
“We expect resilient 2H26 upstream earnings on seasonally stronger third quarter production and firm CPO prices,” the research house said.
BIMB Research said downstream earnings improved sequentially in the second quarter of 2026, although performance remained uneven across products and geographies.
“We expect near-term oleochemical demand to remain supported by supply disruptions in global petrochemical markets, which have improved the relative competitiveness of palm-based products.
“Nevertheless, commodity refining and kernel-crushing margins are likely to remain thin because of excess regional capacity, intense competition from Indonesian producers and volatile feedstock costs.”
