PETALING JAYA: The plantation sector is expected to benefit from elevated crude palm oil (CPO) prices extending into 2027, supported by Indonesia’s expanded biodiesel mandate and weather-related production risks, says Hong Leong Investment Bank (HLIB) Research.
The research house has raised its 2027 average CPO price assumption to RM4,500 per tonne from RM4,300 previously, while maintaining its 2026 forecast at RM4,450 per tonne. It also maintained its “overweight” stance on the sector, citing an increasingly tight supply-demand balance.
“We believe the market is increasingly looking beyond 2026,” HLIB Research said in its latest sector report.
It expects Indonesia’s B50 biodiesel mandate, which requires a 50% palm oil blend in biodiesel, to provide structural support for domestic consumption. Nationwide distribution began on July 1, 2026, with 94% of public fuel stations and 120 of Pertamina’s 121 fuel terminals supporting B50 as of Sept 5.
Upon full implementation, the mandate is estimated to add about three million tonnes annually to Indonesia’s CPO consumption, equivalent to around 6% of the country’s 2025 CPO production.
Meanwhile, the potential impact of a strong El Nino could further constrain supply. The US National Oceanic and Atmospheric Administration has raised the probability of a historic-strength El Nino occurring in October to December 2026 to 75%.
Drier-than-usual conditions are already emerging in key Indonesian oil palm-growing areas, particularly Kalimantan.
However, HLIB Research expects the more significant impact on yields to materialise in 2027, given the lag between weather stress and oil palm production.
Indonesia’s ongoing enforcement against plantations operating illegally within forest areas could also tighten supply through the loss of productive acreage and operational disruptions.
Near-term inventory increases, however, could weigh on prices. Malaysia’s palm oil stocks rose 7.5% month-on-month to 2.82 million tonnes in August, as higher production coincided with softer exports, particularly to India.
HLIB Research expects inventories to remain elevated over the next one to two months, as production typically peaks around September and October, before drawing down as seasonal output eases and El Nino’s effects emerge.
At the stock level, the research house named Hap Seng Plantations Holdings Bhd
and IOI Corp Bhd as its top picks, both with “buy” calls and target prices of RM2.81 and RM5.16, respectively.
It also upgraded Kuala Lumpur Kepong Bhd to a “buy” from “hold”, raising its target price to RM23.85 from RM22.72, following greater clarity on the group’s underlying asset values after recent impairments at Synthomer.
