PETALING JAYA: The plantation sector is expected to remain subdued in the near term, but improving supply-demand conditions could support a stronger recovery in crude palm oil (CPO) prices in 2027.
The anticipated impact of a strong El Nino on output, alongside potentially tighter global palm oil supplies, could provide a catalyst for plantation stocks after their recent pullback.
Maintaining its “overweight” rating on the sector, CIMB Research said the recent weakness in plantation stocks offered an opportunity to accumulate selected stocks.
The brokerage wrote in its report: “We view the recent weakness in CPO prices and plantation share prices as an opportunity to accumulate selected names ahead of a potential 2027 tightening palm oil supply cycle.”
Its preferred Malaysian plantation stocks are IOI Corp Bhd
, Kuala Lumpur Kepong Bhd (KLK), Genting Plantations Bhd and Hap Seng Plantations Holdings Bhd.
“We believe the current strong El Nino could lead to a tighter global palm oil balance in 2027, although current elevated Malaysian palm oil inventories could weaken CPO prices in the near term,” CIMB Research said.
It pointed to the strong 2015/16 El Nino as a useful historical comparison, while cautioning that differences in the timing and intensity of the current weather event, Indonesia’s B50 biodiesel programme and the geopolitical and regulatory backdrop meant it should not be treated as an exact repeat.
RHB Research also maintained an “overweight” rating on the sector, expecting CPO prices to remain range-bound in the short term before rising in the first half of 2027 as output comes under pressure from El Nino and stock levels moderate.
“Given the recent pullback in CPO and share prices, we believe this provides an opportunity for investors to buy on weakness,” it said.
RHB Research expects CPO prices to reverse higher from the first quarter of 2027 as output starts to moderate significantly, with its 2026 and 2027 CPO price assumptions unchanged at RM4,400 and RM4,500 per tonne, respectively.
Its preferred names include Sarawak Oil Palms Bhd, IOI, Hap Seng, SD Guthrie Bhd and Johor Plantations Group Bhd.
RHB Research also noted that a potential increase in Indonesia’s biodiesel mandate to B60 in 2027 from B50 could remove an additional five million to six million tonnes of palm oil supply from the global market, while a positive palm oil-gas oil spread could revive discretionary biodiesel demand.
UOB Kay Hian (UOBKH) Research likewise retained its “overweight” rating, but expects record Malaysian stocks to cap prices into early 2027.
It forecast CPO at RM4,500 per tonne in 2026 and RM4,700 in 2027.
“We expect a strong El Nino to cut Malaysian output by 8% in 2027 and draw stocks down to 1.6 million tonnes by end-2027,” the brokerage.
Its sector picks remain SD Guthrie, Genting Plantations and KLK.
“We estimate end-September stocks at 3.3 million tonnes, above the December 2018 record of 3.22 million tonnes, but slightly below the 3.45 million tonne median of a Bloomberg survey,” UOBKH Research said.
Meanwhile, an analyst noted that while the near-term outlook would be challenging, the supply picture could tighten in 2027, improving prospects for the plantation sector. “Investors could look beyond current inventory pressure as El Nino risks begin to affect output,” he told StarBiz.
