PUTRAJAYA: Crude palm oil (CPO) prices could climb further into 2027 as the lingering effects of El Nino weigh on Indonesian output, tightening global supply despite resilient Malaysian production, IOI Corp Bhd
says.
According to IOI Corp group managing director and chief executive Datuk Lee Yeow Chor: “At the current level of RM4,500 to RM4,600 per tonne, we expect prices to remain supported.
“We anticipate inventories to gradually decline towards the first quarter of 2027. By the end of the quarter, we expect stock levels to return to more moderate levels,” he said at a press conference in conjunction with the company’s AGM yesterday.
Lee said he expects the market to become increasingly concerned about Indonesia’s declining output as the effects of El Nino become more apparent, potentially triggering renewed upward pressure on prices.s
The Malaysian Palm Oil Council (MPOC) recently said in a report that CPO prices are expected to remain firm above RM4,600 per tonne in November, supported by seasonal production declines, resilient biodiesel demand and tighter global supplies of competing vegetable oils.
Lee highlighted that CPO prices had retreated from around RM5,000 per tonne in August, when the market anticipated a severe El Nino impact, to the current levels amid concerns over rising Malaysian palm oil inventories.
However, exports had also expanded strongly by more than 30% to 40%, providing some support to demand despite the higher stock levels.
On production, Lee expects Malaysia’s seasonal peak to be slightly delayed to November this year, compared with the usual September or October, before output begins its seasonal decline.
He noted that Malaysia’s production should remain unaffected by El Nino, with rainfall generally normal and favourable across its plantation areas.
In contrast, Indonesia had experienced about three months without rainfall from July to October, with the effects expected to weigh on production gradually.
“The first significant effects are expected to emerge about six months after the onset of a drought, while another round of effects could materialise 15 to 18 months later.
“We are already seeing some impact on our own Indonesian production, and the effects could accumulate over time,” he said.
The seasonal production decline, lingering drought effects and reduced sunshine hours are expected to further constrain Indonesian output, while the country’s biodiesel mandate should provide additional support for palm oil demand.
Despite the weather risks, IOI Corp expects its financial year 2027 (FY27) CPO production to register single-digit growth, supported by higher fresh fruit bunch (FFB) yields as more young palms mature and improved oil extraction rates.
Lee said this was largely due to the group’s plantation exposure being concentrated in Malaysia, with its Indonesian estates accounting for about 12% of total planted area.
The MPOC also noted that Malaysian palm oil production rose 16.4% to 2.11 million tonnes in September, supported by higher FFB output and improved oil extraction rates. It added that production is believed to have peaked in September and is expected to decline seasonally over the next five months.
Beyond its plantation operations, IOI Corp is targeting annual capital expenditure (capex) of RM900mil to support business expansion, compared with approximately RM750mil spent last year.
“Previously, our normal annual capex was about RM500mil or less, but this has since increased to between RM700mil and RM800mil, reflecting our commitment to investing for future growth,” he said.
Lee added that the group’s net gearing of about 10% provided sufficient financial flexibility to undertake additional investments, including one or two more solar projects as part of its expansion into renewable energy.
