PETALING JAYA: Record-high palm oil stocks are expected to weigh on crude palm oil (CPO) prices in the near term, although improving export demand and lower production towards year-end could help ease the surplus heading into 2027.
Earlier this week, the Malaysian Palm Oil Board reported that palm oil stocks surged 24.5% month-on-month (m-o-m) to a record 3.51 million tonnes in September, up 48.8% year-on-year.
Of the total stockpile, 2.16 million tonnes comprised CPO, up 31.9% m-o-m, while processed palm oil stocks rose 14.3% to 1.35 million tonnes.
The increase came as production jumped 16.5% m-o-m to a record 2.12 million tonnes, while exports fell 12.1% to 1.12 million tonnes for a second consecutive month.
Industry veteran Joseph Tek Choon Yee expects record palm oil stocks to cap CPO prices in the near term, with inventories likely to remain elevated through the rest of 2026.
“Much depends on how quickly production moderates and exports recover,” he told StarBiz.
Tek said industry checks suggested production remained firm in early October.
Malaysian Palm Oil Council chief executive officer Belvinder Sron attributed the weaker exports in September partly to limited vessel availability in the Strait of Malacca.
She said freight costs for vessels departing from the Strait of Malacca increased by 10% to 15% in September compared with August, as disruptions in the Red Sea continued to divert vessels around the Cape of Good Hope.
“The longer route added an estimated 10 to 15 days to voyages to Europe, with similar delays on return journeys from European hubs to Asia, tightening vessel availability for Malaysian palm oil shipments and creating a temporary logistics bottleneck,” she added.
However, Sron said export performance improved in the first 10 days of October, citing cargo surveyor AmSpec estimating shipments at 525,000 tonnes, up 37%, while Intertek Testing Services put shipments at 491,000 tonnes, up 33%.
“Based on the stronger pace of shipments, October exports are projected to reach around 1.6 million tonnes,” she said.
On the supply side, Sron said September’s increase was supported by higher fresh fruit bunch output and an improvement in the oil extraction rate.
“Palm oil production in 2026 is likely to have peaked in September and is expected to trend lower from October onwards through the end of the year,” she said.
Looking ahead to 2027, Tek said the market would be shaped by El Nino’s impact on yields, Indonesia’s biodiesel mandate, rising production costs and demand from major importing countries such as India.
He expects CPO prices to remain “relatively favourable but volatile”, with limited upside until inventories show a sustained decline.
“I would not turn bullish just yet. A firmer market in 2027 remains possible if production risks materialise and demand holds up,” he said.
However, Tek cautioned that higher CPO prices might not necessarily translate into better plantation profits if yields declined and operating costs continued to rise.
“Today’s abundance could conceal tomorrow’s scarcity, but the surplus must first be worked down.
“Stocks are visible in the tanks, while future yields are already being shaped in the palms,” he said.
Analysts expect demand to improve in the coming months, supported by festive buying in India, restocking by key importing countries and potential advance purchases ahead of the European Union’s Deforestation Regulation (EUDR).
BIMB Research said India’s recent cut in CPO import duty and restocking ahead of Deepavali could help absorb higher supply, while the EUDR could prompt European buyers to bring forward purchases ahead of its implementation on Dec 30, 2026, for large and medium companies.
RHB Research said India’s effective CPO import duty was lowered to 11% from 16.5% on Sept 24, with reports indicating that the country had already started increasing palm oil purchases following the reduction.
“Restocking demand should pick up, as stock levels in most importing countries remain low,” it noted.
As at end-August, palm oil inventories in Pakistan and Bangladesh were 22% and 32% below their respective historical averages, while China’s stocks were 63% above average and India’s were 4% higher, according to RHB Research.
The research house said the wider soybean oil-palm oil price spread, which rose to US$375 per tonne in October from US$339 per tonne in September, should encourage understocked countries to step up purchases in the coming months.
BIMB Research said CPO prices averaged RM4,614.50 per tonne in September, up 1.5% month-on-month and 5.6% year-on-year, marking the highest monthly average so far in 2026.
This brought the nine-month average to RM4,451 per tonne, up 2.3% from RM4,350 a year earlier.
However, the research house pointed out that prices weakened towards the end of the month, with local delivery prices falling to RM4,399.50 per tonne on Oct 8, tracking softer soybean oil prices and expectations of record-high inventories.
Looking ahead, BIMB Research expects CPO prices to trade between RM4,300 and RM4,800 per tonne in the fourth quarter of financial year 2026 (4Q26), before rising to between RM4,500 and RM5,000 per tonne in the first half of financial year 2027.
It maintained its average CPO price forecasts at RM4,400 per tonne for 2026 and RM4,500 per tonne for 2027, with greater upside potential next year from stronger biodiesel demand and weather-related supply pressures.
RHB Research also maintained its forecasts at RM4,400 per tonne for 2026 and RM4,500 per tonne for 2027, expecting prices to recover from 1Q27 as production moderates.
“While CPO prices may remain range-bound in the short term given the peak production season and high stock levels, we expect this to reverse from 1Q27 once output starts to moderate significantly due to El Nino,” it noted.
“We would take this opportunity to pick up some value stocks on weakness.”
Hong Leong Investment Bank Research similarly maintained its average CPO price assumptions at RM4,450 per tonne for 2026 and RM4,500 per tonne for 2027, expecting inventories to draw down as seasonal production eases and the lagged effects of El Nino weigh on output.
The research houses maintained their “overweight” calls on the plantation sector, mainly citing the prospect of tighter supply and sustained CPO prices next year.
The prospect of firmer CPO prices next year, however, comes alongside higher labour costs following the minimum wage increase announced under Budget 2027.
CIMB Research said the increase in the minimum wage from RM1,700 to RM2,000 a month, effective June next year, could reduce upstream plantation companies’ earnings by 0.2% to 4% in 2027 and 2% to 7% in 2028.
“We view the RM300 per month increase in the minimum wage as negative for upstream plantation companies, particularly those with a higher proportion of general estate workers earning the minimum wage,” it said in a report.
“Harvesters should be less affected, as their earnings are generally above the minimum wage.”
CIMB Research identified Johor Plantations Group Bhd
, Ta Ann Holdings Bhd and Hap Seng Plantations Holdings Bhd as among the companies likely to be most affected, although higher productivity and greater mechanisation could help mitigate the impact.
“We expect planters with higher productivity, greater mechanisation and better cost efficiency to be better positioned to absorb rising labour costs,” it said.
The research house added that the expanded sales tax refund facility for qualifying machinery, fertiliser and pesticide inputs could help ease some of the cost pressure.
Nevertheless, CIMB Research maintained its “overweight” call on the plantation sector, expecting El Nino-related production risks to tighten supply and support CPO prices in 2027.
“We expect El Nino-related production risks to tighten palm oil supply in 2027, supporting higher CPO prices and helping offset wage pressures,” it said.
While higher fertiliser costs and wages remain key risks, BIMB Research said these should be manageable, with firm CPO prices helping to offset the increases.
“We prefer upstream-focused planters, which offer the clearest earnings leverage to higher CPO prices going into 2027, and selectively favour Malaysia-focused companies with lower exposure to Indonesia-specific regulatory risks,” it said.
