CPO prices seen at RM4,400-RM4,600 on tighter supply

KUALA LUMPUR: Petroleum palm oil prices are anticipated to range between RM4,400 and RM4,600 per tonne in the near future, driven by advantageous biofuel economics, strengthening El Nino conditions, and reduced global vegetable oil supply. CIMB Securities Sdn Bhd notes that higher energy costs have boosted biofuel margins, shifting Indonesian CPO from a premium to discount status in August 2025.

This is expected to bolster biodiesel demand and alleviate Indonesia's B50 biodiesel mandate subsidy burden. Unusually dry conditions and low rainfall in Indonesia and Malaysia over the past six weeks, coupled with decreased fertiliser use, introduce downside risks to palm oil production from 2027. The forward market already suggests tighter supply, with palm oil for January to March 2027 trading at more than RM594 a tonne above October 2026 levels.

Reduced sunflower oil exports from Russia and Ukraine may encourage substitution towards palm oil, especially since Indian refiners typically increase sunflower oil purchases between October and March. However, elevated Malaysian palm oil inventories might curb near-term gains, with stocks projected to increase another 5.3% month-on-month to 2.98 million tonnes in September.

Malaysian palm oil inventories surged 7.5% month-on-month and 28.2% year-on-year to 2.82 million tonnes in August, surpassing CIMB Securities' forecast of 2.68 million tonnes and consensus estimates ranging from 2.76 million to 2.78 million tonnes. The inventory surge is mainly attributable to weaker-than-anticipated exports, while production grew by only 1.4% month-on-month to 1.82 million tonnes, down 2% on a year-over-year basis.

CIMB Securities attributes the inventory buildup to weaker-than-expected exports and modest production growth. On a year-over-year basis, production declined by 2%. The firm attributes the larger-than-expected inventory growth to a widening gap between recovering seasonal production and subdued export demand. It expects production to remain seasonally robust in the coming months, making a substantial export recovery crucial to prevent inventory levels from further rising.

The higher stock levels could limit near-term CPO price upside, although a downside may persist if biological tree stress continues to impede production growth. CIMB Securities retains its 2026 and 2027 CPO price forecasts at RM4,450 and RM4,550 per tonne, respectively, and maintains an Overweight rating on the sector. Its top recommendations include IOI Corp Bhd, Kuala Lumpur Kepong Bhd, and Hap Seng Plantations Holdings Bhd.